Public Bill Committee

[Mr. Peter Atkinson in the Chair]

(Except clauses 7, 8, 9, 11, 14, 16, 20 and 92) - Clause 114

Remote bingo etc.

Question (this day) again proposed, That the clause stand part of the Bill.

Sarah McCarthy-Fry: Welcome back to the chair, Mr. Atkinson. There are a couple of points I wanted to conclude with. The clause simply corrects a deficiency in the original legislation for remote gaming duty to ensure that the original policy intentions are delivered.
My hon. Friend the Member for South Derbyshire asked about the ability of bingo clubs to provide terminals, in order to offer, within the club, remote bingo from operators based in the UK or elsewhere. That is an interesting but complex area and we will continue to explore it. I thank my hon. Friend for raising the issue. We will look at it in more detail, although the social regulation falls under the remit of the Department for Culture, Media and Sport and the Gambling Commission, and we will continue to work closely with them.
My hon. Friend the Member for Tamworth asked about companies moving offshore and offering gambling products to UK residents from low-tax jurisdictions. When we introduced remote gaming duty in 2007, we looked closely at options for taxing such operators on the basis of the place of consumption, but concluded at the time that it would be difficult to ensure compliance with any such regime without co-ordinated international agreement.
I noted before the Adjournment that the DCMS is soon to conduct a review of remote gambling legislation in the UK to report to Parliament before the end of 2009. The review will explore ways to make the system of gambling regulation in Britain fairer to ensure a more level playing field between British businesses and their overseas counterparts, and we will continue to look carefully at that from a tax perspective.
Clause 114 removes inconsistencies in legislation to bring remote bingo within the scope of remote gaming duty. Without it there is a danger that remote bingo offered from the UK could be left untaxed.

Question put and agreed to.

Clause 114 accordingly ordered to stand part of the Bill.

Clause 115

Meaning of gaming machine and gaming

Question proposed, That the clause stand part of the Bill.

Greg Hands: Clause 115 is purely technical and relates to the meaning of the terms gaming machine and gaming. The intention is to amend the definition of those terms in the Betting and Gaming Duties Act 1981 so that any cross-references to the definitions in that legislation are no longer required. Will the Minister clarify that it has no wider potential impact? If she can assure us of that, we will have no problem in supporting the clause. Can I also ask her briefly about a written parliamentary question on the subject of taxation of gaming machines? A question was tabled by my hon. Friend the Member for North-East Cambridgeshire (Mr. Moss), and the Ministers predecessor, the hon. Member for Burnley (Kitty Ussher) said:
An impact assessment, including an assessment of compatibility with Hampton principles, will be published alongside the consultation document on moving gaming machines taxation to a gross profits regime. We expect to publish these before the summer recess.[Official Report, 15 June 2009; Vol. 494, c. 54W.]

Peter Atkinson: Order. I am listening carefully to the hon. Gentleman and he seems to be straying very wide of the clause, which deals with the meaning of gaming machine and gaming.

Greg Hands: I accept your ruling, Mr. Atkinson, and I will try to raise the point on another occasion.

Sarah McCarthy-Fry: It may please the Committee to hear that this is the final clause on gambling taxation in this years Finance Bill. We have had interesting debates in the proceedings that I have been involved in. The first part of the clause concerns the excise definition of a gaming machine, the second the definition of gaming. At present, the definitions read from the VAT law. The clause amends the Betting and Gaming Duties Act 1981, so that it contains statutory definitions of gaming machine and gaming. The change simplifies and clarifies this area of the gambling tax legislation and I am pleased to confirm that, beyond the clarification, there will be no impact on the industry.

Question put and agreed to.

Clause 115 accordingly ordered to stand part of the Bill.

Clause 116

Taxable commodities ineligible for reduced-rate supply

Question proposed, That the clause stand part of the Bill.

Greg Hands: I must say that I am a little surprised that the Minister has not risen to introduce clause 116, which, like clause 117, is on the climate change levy. However, I will try to explain what clause 116 is all about. I will briefly explain the climate change levy, because when we come to discuss exactly what has been changed we must understand the context for that change.
Normally the Government love to talk about and defend the climate change levy, so, as I say, I was slightly surprised by the Ministers reluctance to talk about it.

Sarah McCarthy-Fry: I shall be speaking on it.

Greg Hands: The Minister says, from a sedentary position, that she will be talking about the clause, but I was under the impression that, when we are debating a clause, normally a Minister would first seek to defend what the Government are proposing.
The climate change levy, as we know, is a tax based on the quantity of a commodity supplied. The levy is charged on taxable supplies, which are supplies of what is called a taxable commodity, as defined in the legislation and on which climate change levy is due to be paid. The definition of a taxable commodity is also found in paragraph 3 of schedule 6 to the Finance Act 2000. According to that measure, the following are taxable commodities:
(a) electricity;
(b) any gas in a gaseous state that is of a kind supplied by a gas utility;
(c) any petroleum gas, or other gaseous hydrocarbon, in a liquid state;
(d) coal and lignite;
(e) coke, and semi-coke, of coal or lignite;
(f) petroleum coke.
Paragraph 3(3) of that schedule says:
The Treasury may by regulations provide that a commodity of a description specified in the regulations is, or is not, a taxable commodity for the purposes of this Schedule.
We will come on to discuss the reduced rate. It is a relief that is intended to operate for a 10-year transitional period, to allow businesses to make energy efficiency savings. The 10-year period is a condition of being given approval by the European Commission under the state aid rules; there must be a 10-year transitional period for these energy efficiency savings. Paragraph 44 of schedule 6 to the 2000 Act makes provision for an 80 per cent. reduction in the levy for energy-intensive industries that have entered into a negotiated energy efficiency climate change agreement. Those CCAs will be referred to in the course of our debates on clauses 116 and 117 and the relevant schedule.
Energy-intensive users are those who operate a part A process listed in schedule 1 to the Pollution Prevention and Control (England and Wales) Regulations 2000, which is Statutory Instrument 2000 No. 1973. In return for the reduced rate, targets for energy efficiency or emissions reduction are set. In other words, because of the state aid rules, so long as a company states over the 10-year period how it will become more energy efficient, as part of the CCA, at the end of that period it gets a reduced rate.
Until now, the Department for Environment, Food and Rural Affairs has been responsible for classifying a facility as being eligible for the reduced rate under a CCA. I am assuming that the Department of Energy and Climate Change is now responsible for making such classifications, but it would be helpful if the Minister could clarify that. At the same time, however, HMRC is given access to the variation certificates, to enable verification of the legitimacy of any claims that are made under the relief. Examples of industries included are: energy industries; production and processing of metals; the mineral industry; the chemical industry, and waste management.
Paragraph 44 of schedule 6 refers to paragraph 45 of the same schedule, which deals with variations in terms of notices and establishes the power of the commissioners to make regulations covering whether or not a supply of a taxable commodity is made to a facility covered by a notice, including specific provision to determine whether a supply is delivered to a facility.
A variation certificate may be issued, which either removes or adds to the entitlement of a facility covered by a CCA, or amends the period to which a CCA applies. That is my understanding of the background to clause 116. It would be helpful if the Minister could confirm that my understanding is correct.
I turn to clause 116 itself, which is entitled Taxable commodities ineligible for reduced-rate supply. As I have mentioned, the reduced rate provided by CCAs is classified as state aid. New community guidelines on state aid for environmental protection were issued in 2008, and, as I understand it, provide the background to the clause. The energy product directive 2000/96/EC provides minimum rates unless the European Commission can be satisfied that additional relief is proportionate and necessary. It would be helpful if the Minister could confirm whether the issue under discussion is solely due to that directive.
The climate change levy reduced rates for gas and solid fuel are below those minimum rates, hence the need for the clause. The clause ensures that the Secretary of State can vary existing certificates to make eligible taxable commodities ineligible, and vice versa, with the consent of HM Treasury, and provided that the provision is in line with the Commissions state aid rules. Sectors that do not meet the necessity and proportionality test entitlement to claim the reduced rate on gas and electricity will be denied relief, thus ensuring compliance with the state aid rules.
Thus, sectors can still be within the rules on a CCA, but can only get the reduced rate on other taxable commodities, such as electricity. That is my understanding of the issue, and it would be helpful if the Minister could confirm that that is the case, and that the issue arises solely as a result of the European Union directive that became live last year.

Sarah McCarthy-Fry: The new state aid guidelines on environmental protection were introduced in 2008, as the hon. Gentleman has said. The guidelines stipulate that if, after the tax reduction, the tax payable on any taxable commodity is above the minima set out in the directive on the taxation of energy products, a notification can be approved without considering new and challenging necessity and proportionality tests set out in the guidelines. The rates of levy for all taxable commodities are comfortably above the directive minima, as are the reduced rates of levy for electricity and liquefied petroleum gas. However, the reduced rates of levy for solid fuel and gas are below the minima.
The British Plastics Federation represents a new sector wishing to join the scheme, but it has been unable to satisfy the Commission that the reduced rate is necessary to its members. The Department of Energy and Climate Change estimates that the plastics sectors entry to the scheme would provide annual savings of 32,000 tonnes of CO2 against the 2006 baseline. We have therefore looked at alternative methods of admitting the sector to the scheme.
During discussions of the plastics sectors application to join the climate change agreement scheme, the Commission indicated that the UK could limit aid given through the scheme to those commodities for which the UKs reduced rate is above the minimum set out in the directive on the taxation of energy products. In those circumstances, the aid would fall within the provisions of a block exemption and could be introduced without first being subject to scrutiny by the Commission. The Government therefore intend to limit the sectors entitlement to claim the reduced rate of levy to its use of electricity and liquefied petroleum gas.
Since electricity use accounts for around 80 per cent. of the sectors energy use, the restriction will still make a significant difference to the sectors energy costs. Moreover, despite the restricted entitlement to the reduced rate, the DECC will not alter the targets originally negotiated with the plastics sector, which were based on entitlement to the reduced rate for all taxable commodities. There will therefore be no weakening of the environmental benefits accruing from the sectors membership of the scheme.
The clause enables entitlement to claim the reduced rate of climate change levy to be restricted to certain taxable commodities. The restriction will be given in certificates issued by the Secretary of State for Energy and Climate Change with the agreement of HM Treasury, which I think answers one of the hon. Gentlemans questions. Where no such restriction is specified, businesses participating in the scheme will be able to claim the reduced rate on all taxable commodities used in processes covered by their agreements. Limited entitlement to claim the reduced rate will therefore be focused on members of the British Plastics Federation who would otherwise be unable to comply fully with the state aid rules. The entitlement of other sectors already within the scheme will be unaffected.
The clause will allow businesses in the plastics sector to enter into climate change agreements, providing relief from the climate change levy to energy-intensive industry, while at the same time delivering significant environmental benefits.

Question put and agreed to.

Clause 116 accordingly ordered to stand part of the Bill.

Clause 117

Removal of reduced rate where targets not met

Question proposed, That the clause stand part of the Bill.

Sarah McCarthy-Fry: Clause 117 is an enabling clause that provides for schedule 59 ,and I think that the meat of the debate will be on that. If the hon. Gentleman wants to make any comments, I am sure that he will be with us then to do so.

Greg Hands: Sorry, I was under the impression that we would take the clause and schedule together.

Peter Atkinson: Up to now we have been more or less doing that, and I am happy for that to continue if it is more helpful to the Committee.

Sarah McCarthy-Fry: I am sorry, Mr. Atkinson, I did not hear you; I thought that you said clause 117.

Peter Atkinson: I did. The Minister was not here in the earlier stages. When we have a simple one or two-line clause introducing a schedule, the tradition is to debate the two together, so if the Minister would like to speak to the clause and the schedule, that would be fine.

Sarah McCarthy-Fry: I will broadly introduce the schedule and will then welcome debate.
The climate change agreements scheme is a state aid scheme. It was designed to run for 12 years, until 2013. When the UK notified the scheme as state aid in 2001, we made that clear to the European Commission. However, in accordance with the prevailing Community guidelines on state aid for environmental protection, approval could be given for 10 years only. Therefore, the Government intend to seek a two-year extension to the state aid approval before the current approval expires in 2011.
The scheme is structured around two-year certification periods, within which are 12-month target periods. If a sector passes its targets, all facilities within that sector are certified as entitled to pay the reduced rate for the subsequent two years. If a sector fails to meet its target, facilities within that sector that also fail their individual targets lose their right to the levy reduction for the subsequent two years. Currently, the only consequence of failure, and therefore incentive not to miss targets, is prospective loss of the levy reduction.
A condition of state aid approval for the scheme in 2001 was that for the last two years of the 10-year approval2009-11the UK must introduce a mechanism to recover tax from facilities that fail to meet their targets during the period. The recovery of levy must be proportional to the missed targets.

Greg Hands: Will the hon. Lady give way?

Sarah McCarthy-Fry: I will not give way. The hon. Gentleman asked me to introduce the schedule and he will have ample opportunity to respond.
That requirement reflected the Commissions concern that the levy relief for 2011-13, which participants would expect to receive for meeting targets during the 2010 target period, falls outside the period of current state aid approval. Consequently, if the UK did not seek, or was unsuccessful in securing, an extension to the state aid approval beyond 2011, it would weaken the incentive for businesses to meet their 2010 targets.
The introduction of the recovery mechanism represents a fundamental change to the scheme. The Government are introducing the necessary legislation now to ensure that participating facilities are aware of the new consequence of missing their targets before those targets are agreed with the DECC later this year.
Schedule 59 introduces a mechanism to enable HM Revenue and Customs to recover the climate change levy from facilities that fail to meet the agreed targets and are in sectors that miss their sector targets for the same period, proportionate to the facilitys extent of shortfall against their target or targets. I will leave it there and let the hon. Gentleman come back with his comments and questions.

Greg Hands: I apologise for trying to intervene but I was confused about one point. It may be a misunderstanding, but my information is that we are talking about a 10-year process, which ends in 2011. I think that the Minister said that it was a 12-year process, also ending in 2011. To rephrase that as a question: did the process start in 1999 or 2001? We seem to agree that it ends in 2011.
As the Minister says, the measure is being introduced due to state aid rules. As I understand it, a condition for the Government receiving state aid approval is that for the last two years of the 10-year approval, a mechanism must be in place to receive tax from facilities that failed to meet their target as set out under the particular CCA. The tax is proportional to the extent that the targets are missed.
I was of the view that the recovery mechanism applies to certification schemes beginning on or after 1 April 2009 because the last two years of the 10-year period run from April 2009 to 31 March 2011. As the Minister said, the measure will be a further incentive for businesses to meet their CCA targets because they will incur a financial cost if they fail to do so. However, she did not mention that it will introduce a further level of complexity to the administration of the climate change levy. Businesses will have to consider the potential implications of this measure when they negotiate their climate change agreements and energy consumption targets.
Will the Minister clarify whether we are talking about a 10-year or a 12-year period? What consultation was undertaken prior to the introduction of the measure? What studies have been done of the cost of the new measure compared with the tax that it is predicted to raise?

Sarah McCarthy-Fry: I confirm that climate change agreements were introduced in 2001. We intended for there to be a 12-year scheme that ran until 2013, but under the guidelines, approval could be given for only 10 years. We will seek state aid approval for the final two years of the scheme because we intended it to go up to 2013. It was announced in the 2007 pre-Budget report that the Government intend to extend the climate change agreements scheme until 2017. That, too, is subject to further state aid approval being secured.
I shall explain how the mechanism will work. The DECC will notify Revenue and Customs when a facility meets the criteria. Revenue and Customs will then inform the facility that repayment of the levy is required and confirm the amount that is due.
Sector associations involved in climate change agreements have been consulted informally by the DECC about the new provision. The sectors accept that this action, which is taken to ensure that the UK complies with its state aid obligations, will enable the climate change agreement scheme to continue, along with the corresponding entitlement to claim the levy reduction. They understand that, based on performance against targets in the last target period, the recovery of levy is likely to apply for a limited number of the 10,000 or so facilities in the schemeabout a quarter of 1 per cent. There has been no impact assessment of this measure because the administrative impact on the voluntary and private sectors and on Government will be negligible.

Question put and agreed to.

Clause 117accordingly ordered to stand part of the Bill.

Schedule 59 agreed to.

Clause 118

Landfill tax: prescribed landfill site activities

Question proposed, That the clause stand part of the Bill.

Greg Hands: The clause deals with a fairly localised issue relating to landfill tax. It will introduce changes to landfill tax legislation from 1 September 2009. The changes originated from the Court of Appeals judgment in the Waste Recycling Group Ltd case of 2008, commonly known in the industry as the WRG case. The case related to certain materials that would otherwise have gone to landfill being used by the site operator to improve the site; for example, to maintain roads or for daily cover requirements. The court ruled that such materials were not subject to the landfill tax. In other words, landfill materials used on the infrastructure of the site were not subject to the tax.
The legislative changes in the Bill are intended to clarify the law by restricting the scope of the court decision so that landfill tax will continue to apply in the majority of circumstances. In other words, an activity on a landfill site will be subject to landfill tax, and HMRC has wider powers to make any provision to ensure that such an activity is subjected to the tax. In fact, under the provision, an order can be made to vary almost anything except the rate of landfill tax itself.
I have a couple of questions from the explanatory notes. I am sure that there is a perfectly good reason for this, but why the need for the different introduction dates? Generally, most paragraphs take effect from the date of Royal Assent, save for paragraphs 10 and 11, which take effect from 1 September. Is there any basis for that date? Paragraph 17 of the background notes says:
The removal of the requirement that the landfill tax return form is prescribed in regulations is a matter of administrative convenience which will bring landfill tax in line with the other environmental taxes (aggregates levy and climate change levy).
I appreciate that those two taxes are outside the scope of todays discussion, but I would be grateful if the Minister could confirm whether we are seeing a standardisation measure across a whole selection of taxes.
In support of the proposed legislative changes, HMRC also announced a consultation exercise, seeking views on the preferred and alternative options for change, which are aimed at modernising the definition of a taxable disposal of waste at a landfill site, and the definition of wastes that should qualify for the lower rate of tax. Interested parties have been invited to make comments before 24 July 2009.
I note that the consultation closes in four weeks. I am not asking the Minister to make a judgment on the results of that consultation, but could she tell us how the consultation is progressing and how many responses it has had to date? Will she tell us whether the new rules will bring in a change in the tax take, what efforts HMRC has made to inform landfill operators of the nature of the clause, when it will take effect and what the likely impact will be on the sort of behaviour that gave rise to the court case in the first place?

Sarah McCarthy-Fry: Let me provide a bit of background. Landfill tax is payable each time waste is disposed of at landfill. It is an environmental tax that seeks to ensure that the full environmental cost of waste disposal to landfill is reflected in business decision making. Last year, the Court of Appeal found that where material is received on a landfill site and put to use on the site, there is no liability to landfill tax. The Government have accepted that decision and we have accordingly invited applications for refunds of tax.
The Waste Recycling Group case means that we are now in a position in which landfill tax legislation relating to use of waste on site does not reflect our policy intention. The use of waste at a landfill site is, in effect, disposal in terms of environmental impact. It is treated as disposal under environmental protection regulation and, on that basis, it should be taxed as disposal. However, the WRG judgment means that, at present, no tax is due. Let me give an example. The use of inert waste as a protective cover for landfill at the end of the working day has the same disamenity of lorry movements and noise as the general landfilling of inert waste. Therefore, it is right that the lower rate of landfill taxable for inert waste should apply to this use for daily cover.
The WRG case means that the Government are receiving less revenue from landfill tax. We estimate that it will amount to £200 million over three years if not addressed. The changes introduced by this schedule will mitigate such revenue losses. However, I stress that this is a case of mitigating revenue losses and not extending the application of the tax.
The Government are determined that landfill tax should remain robust and a cornerstone of our policy for reducing the UKs reliance on landfill. To that end, the schedule provides powers to make a Treasury order, prescribing landfill site activities that are taxable in addition to taxable disposals that are already caught by landfill tax legislation.
We have published a draft of the Treasury order, which we intend to lay following Royal Assent. It lists eight uses of waste at a landfill site and they are all uses that do not involve the creation of a tangibly engineered structure. The order will be subject to approval by the House within 28 days of it being made. The House will therefore have an opportunity to debate it in due course.
The schedule also seeks to ensure that landfill tax legislation remains coherent following the WRG judgment by removing redundant provisions. The exemption from tax of the use of waste for site restoration is removed because, as a result of the judgment, tax would not in any case be due. Similarly, tax would not be due in respect of waste for processing or recovering held in designated areas, often known as tax-free areas, so the tax-free area provisions are therefore removed.
The schedule protects HMRCs access to information on site restoration and processing and recovering activities at landfill sites. That information is important to HMRCs ability to determine whether a taxable disposal has taken place. The schedule provides powers for HMRC commissioners to make regulations about the information that is to be submitted to them. We have published a draft of those regulations, which, with the Treasury order, have been sent to all registered landfill tax operators for information and comment.
In practice, the removal of the site restoration exemption and the provisions on tax-free areas will be directly replaced with requirements to supply HMRC with similar information to that already required under current legislation. Landfill site operators are unlikely to see any practical difference, but, importantly, there will be little or no increase in the administrative burden.
As well as the changes that I have described, the schedule makes one minor provision: it allows the landfill tax return form to be set out in a public notice rather than in secondary legislation, which brings the position for landfill tax in line with the other environmental taxes. It will therefore be easier to make amendments to the return form, should they be required. The change will have no appreciable impact on landfill site operators.
All the changes will be put in place from 1 September 2009a time scale that gives landfill site operators adequate notice, but reflects the importance of quickly bringing the tax in line with policy objectives.

Greg Hands: The Exchequer Secretary is being generous in giving way. She surprised me when she said that £200 million would be lost over three years. Does that sum relate only to the company that was at the centre of the court case? I realise that she cannot disclose the tax paid by particular companies, but it seems a widespread practice to use landfill materials to improve or change a site. Am I right in thinking that that practice has been going on throughout the country?

Sarah McCarthy-Fry: I do not have to hand the basis on which those figures were calculated, but I am happy look into the matter and to pass the information to the hon. Gentleman.
A question was asked about different dates for the introduction of rates. Certain powers need to be brought in to enable the making of the underpinning regulations. From the point of view of taxpayers, the changes come into force on 1 September 2009.
I can now tell the hon. Gentleman that the £200 million figure relates to the whole industry, not just to one company.
I was asked about our progress with consultation. We have received four formal responses, and a number of representative organisations have asked to meet HMRC and HMT. As the hon. Gentleman said, the consultation process does not end until 24 July. To ensure that landfill site operators understand the technical changes, we will publish full public guidance before the changes come into effect. We have already provided operators with a draft of the guidance.
I am confident that in the short term the changes will ensure that landfill tax will continue to play a central role in supporting waste policy. I commend the clause and schedule to the Committee.

Question put and agreed to.

Clause 118 accordingly ordered to stand part of the Bill.

Schedule 60 agreed to.

Clause 119

Requirement to destroy replaced vehicle registration documents

Question proposed, That the clause stand part of the Bill.

David Gauke: It is a pleasure to serve under your chairmanship for the last time on this Finance Bill, Mr. Atkinson.
I have only one question for the Minister. The clause amends the Vehicle Excise and Registration Act 1994 to allow the Secretary of State for Transport to make regulations compelling the registered keepers of vehicles to destroy the vehicle registration certificate once they have received an amended or updated version. My question for the Minister is simple: why is that in a Finance Bill? It does not seem to be directly a taxation matter and consequently it sits somewhat strangely in the Bill.

Brian Jenkins: I have more than one question. I am glad that the measure is in the Bill, because at least I have the opportunity to put a couple of points to my hon. Friend.
I understand why we are compelling owners of vehicles to destroy documents, but some people in this country keep what are called historic vehicles. The historic vehicle is itself an asset, but the documentation is also an asset. When a vehicle is sold and ownership is transferred, it adds value to the vehicle if it was owned by a famous individual, a member of the Royal family or other such person. The documentation is part and parcel of the history of the vehicle. Will my hon. Friend give me an assurance that when a new document has been issued, the owner of the vehicle can send the old document into the Driver and Vehicle Licensing Agency where it can be stamped no longer valid and returned to the owner, so that it can be part of the history of the vehicle?
A second point is that although we say that we need to compel owners to destroy documents, people will be allowed to register documents online, which means that there is no requirement to send the documents back to the DVLA. What assurance can my hon. Friend give me that we will not have a situation in which two sets of documents refer to one set of vehicle registration details? Will not such a situation benefit those individuals in the motor tradethey are thankfully few and far betweenwho carry out the process of ringing, whereby, after a bit of work, two cars are given the same registration number and the same engine stamped number? We will have provided such individuals with an extra set of documents because one set has not been destroyed. Surely, to restrict growth in that trade, it would be far better if we insisted that those documents be sent back to the DVLA. We could therefore close the loop and ensure that we have not got two sets of documents in circulation for one vehicle. I wait for clarification from my hon. Friend on those two points.

Sarah McCarthy-Fry: The hon. Member for South-West Hertfordshire asked why the measure is in the Finance Bill. The provision relates to vehicle licences, which are taxpayer records. The change will help to keep taxpayer records up to date. The purpose of the clause is to grant the Secretary of State for Transport the power to make regulations allowing keepers of vehicles to destroy an existing vehicle registration document once they have received a new one. They are currently legally obliged to notify and return a registration document to the DVLA if any of the details on it change.
The clause lays the foundation for the DVLA to begin work on a system of electronic notification. Motorists will be able to destroy a superseded registration document, instead of having to return it. When the secondary legislation provided for in the clause is enacted, it will bring into force a deregulatory measure that will remove from motorists the burden of having to return the registration document.
The DVLA plans to have a full round of stakeholder engagement before regulations are amended. I am sure that the Federation of British Historic Vehicle Clubs will be part of that stakeholder engagement and that we will consult with it. On historic vehicles and the fact the documentation is an asset, there is no change to the current system. Owners of such vehicles currently have to return the document to the DVLA to be destroyed. Under the Bill, they will simply be able to do it themselves.

Question put and agreed to.

Clause 119 accordingly ordered to stand part of the Bill.

Clause 120

Hydrocarbon oil duties: minor amendments

Question proposed, That the clause stand part of the Bill.

Greg Hands: I have only one question, but I am looking forward to the Ministers explanation of clause 120, which amends the Hydrocarbon Oils Duties Act 1979. My question relates to subsection (2) and the omission of the number 12. The explanatory notes say that that is an unnecessary reference. I am intrigued about why, after 30 years, it has been noticed to be an unnecessary reference. Perhaps the hon. Lady could explain what it used to refer to.

Sarah McCarthy-Fry: I am afraid that I cannot give a detailed explanation of why the reference is unnecessary. I am just glad that, after 30 years, someone has spotted it.
The second part of the clause corrects the wording of section 14D(2) of the 1979 Act so that there is a clear distinction between conduct that attracts a civil penalty and conduct that is a criminal offence relating to the supply of rebated biodiesel or bioblend for prohibited use.

Question put and agreed to.

Clause 120 accordingly ordered to stand part of the Bill.

Clause 121

Inheritance tax: agricultural property and woodlands relief for EEA land

Question proposed, That the clause stand part of the Bill.

David Gauke: The clause extends agricultural property relief and woodlands relief to land held anywhere in the European economic area. There is little in the Budget material or the explanatory notes to the clause to explain the reason for that. The extension is welcome, and I do not intend to divide the Committee on clause stand part, but it would be helpful if the Minister outlined the reason for the clause. We have been advised that it is probably the result of a formal request from the European Commission following the European Courts decision in the Hein v. Persche case, but I shall be grateful if the Minister confirms that.
For a few years, the European Commission has steadily pressed member states to eliminate territorial discrimination in estate and gift tax reliefs. Most case law has involved gifts to charities when the donor is a taxpayer in one state and the charity is based in another. Hein v. Persche is a similar case. Until now, whenever it has had a success, the Commission has issued formal requests to member states, but the UK has generally resisted them. The clause seems to mark a shift in attitude.
Will the Minister confirm the reason for the clause, and will he tell the Committee whether there has been a change in attitude? In the past, did the UK tend to resist the elimination of territorial discrimination in estate and gift tax reliefs, whereas now the Government are taking a different approach? Subject to information on those points, we have no objection to the clause.

Ian Pearson: My turn now, Mr. Atkinson. It is a pleasure to serve under your chairmanship this afternoon.
I am sure that members of the Committee who own agricultural property or woodlands in the European economic area and who might be thinking of dying soon will be interested in the clause. It ensures that if inheritance tax relating to a property has been paid or was due in the past six years, relief may be available. It will provide greater consistency of treatment for inheritance tax reliefs and bring them more into line with relief for business property.
The hon. Member for South-West Hertfordshire is right in saying that by doing this, the Government will meet their obligations under EC law. He referred to a specific court case, and my understanding is that there was a reasoned opinion, which we considered at official level. We believe that it is right to make the changes proposed in the clause and to ensure that we extend inheritance tax woodlands relief to owners of property in the EEA. I hope that that clarifies the matter.

Peter Bone: I do not think the Minister answered my hon. Friends question in full. Has there been a change of policy? It is normal to resist EU directives or guidance in this area, so that nation states decide their own taxation policy. We are perhaps seeing another creeping part of the European superstate.

Ian Pearson: It is always a pleasure to hear the views of the hon. Gentleman and confirm that the divisions in the Conservative party over Europe are alive and kicking, despite the efforts to keep them below the surface for many years.

Adrian Bailey: In the context of the debate and the views expressed by the hon. Member for Wellingborough, does my hon. Friend think that it is appropriate to describe him as a Tory backwoodsman? [Laughter.]

Peter Atkinson: Order. I would be grateful if the Minister did not respond to that intervention.

Ian Pearson: The key point is that we considered the arguments made by the European Commission in this case. We always look at such matters on a case-by-case basis. Having carefully considered the views of the Commission, we decided to extend the reliefs to the EEA. The measure will be backdated six years and will go forward prospectively.
The cost of woodlands relief is negligible. We estimate the costs of agricultural property relief, on a backdated basis, to be about £5 million a year on a continuing basis. That is not a big sum of money and not many people are affected, but we think it is the right thing to do.

Question put and agreed to.

Clause 121 accordingly ordered to stand part of the Bill.

Clause 122 ordered to stand part of the Bill.

Schedule 61

Alternative finance investment bonds

Ian Pearson: I beg to move amendment 321, in schedule 61, page 422, line 16, leave out from 2003) to end of line 19 and insert
except that it does not include a lease if the lease is for
(a) a term of years of 21 years or less, or
(b) in Scotland, a period of 21 years or less..

Peter Atkinson: With this it will be convenient to discuss Government amendments 322 to 332.

Ian Pearson: The amendments ensure that the legislation functions as desired in the registration of the charge in all three Land Registry jurisdictions: England and Wales, Northern Ireland, and Scotland. The charge is an important anti-avoidance measure related to the allowances for tax treatment of alternative finance investment bonds, sometimes referred to as Islamic law compliant bonds, and help to level the playing field with conventional products.
Before turning to the details of the amendments, I will say a few words about Government policy on Islamic finance, which relates to clause 122 and schedule 61. The Government want everybody, irrespective of religious or ethical beliefs, to have access to financial products. As with other high potential growth areas in financial services, the Government are committed to the UK becoming a global leader in Islamic finance. We have made significant progress in recent years and the UK is currently by far the largest western centre for Islamic finance. More than 20 UK firms offer Islamic products and servicesmore than anywhere else in the western world. The UK has five stand-alone sharia-compliant banks and one stand-alone sharia-compliant insurance provider. The London stock exchange is one of the premier listing venues for sharia-compliant products globally, with 18 issuers listing sukuk on the London stock exchange to date, raising close to £6.5 billion. We are confident that we will strengthen and enhance our position in the future, with benefits to all UK taxpayers.
Let me comment very briefly on the issue of potential sovereign sukuk. In November 2008, the Government announced the decision not to proceed with the issuance of sovereign sukuk at that time. The decision was driven by a number of factors, mainly that sovereign sukuk would not have offered value for money owing to the economic conditions in world financial markets and our debt management policy. I emphasise that that decision does not reflect diminished Government commitment to Islamic finance in the UK. Our work, including the measures announced in the Finance Bill, which I hope we will pass today, will pave the way for the Islamic finance industry to issue corporate sukuk products as an alternative source of funding for UK and overseas funds. The Government will keep the situation with sovereign sukuk under review. Personally, I would like sovereign sukuk to be issued in the future.

Mark Hoban: In Committee on last years Finance Bill, we had a lengthy debate with the then Economic Secretary in which we spoke a lot about sovereign sukuk. My hon. Friend the Member for Hammersmith and Fulham and I expressed concern about the cost, compared with other conventional methods of funding Government debt. The Minister has referred to the difference in cost. A number of people have said to me that it would be helpful to those interested in Islamic finance if the Government provided the data underpinning the argument that it would be too expensive to use sovereign sukuk. Would he be open-minded about publishing the data?

Ian Pearson: I am always open-minded when considering publishing data. The decision that we took and announced in October last year was based on a number of factors. Clearly, given the financial climate at the time, issuing sovereign sukuk would demonstrably have had its difficulties. We did not believe that it would have offered good value for money. However, we shall continue to keep that under review, and, as I have indicated, I envisage strong advantages in the UK issuing sovereign sukuk when circumstances allow.

Greg Hands: Will the Minister tell us about the decision-making process? Why was a decision taken last October not to do that? Is the decision not to do something made every month or quarter? How frequently the decision made? It seems extraordinary to have a decision-making process not to do something. What sort of policy is he following?

Ian Pearson: I said that we would keep the matter under view, as is normal Government procedure.
The clause introduces the legislation in schedule 61 on stamp duty land tax, capital gains tax and capital allowances relating to alternative finance investment bonds. It deals with anomalies in the tax treatment arising between AFIBs backed by land and conventional bonds backed by land. More specifically, when the transfer of such property forms part of the arrangements for issuing an AFIB, the transfer could be liable to stamp duty land tax. However, a conventional bond issued in essentially the same economic circumstances would not be liable.
In an effort to level the playing field, stamp duty land tax will not be charged when an AFIB is issued. The legislation will also remove charges for tax in respect of capital gains that might arise on the transfer of property under the same circumstances. The legislation will also ensure that the entity using an AFIB to raise finances will retain its rights to claim capital allowances relating to property transferred under the arrangements for issuing the bond. We have consulted quite extensively with those interested in offering such products, and our efforts to level the playing field have been widely welcomed by them.
As part of the conditions for the relief accorded by the legislation and to protect Exchequer revenue in the event of default, a charge in favour of HMRC must be registered against the title of the property used in the alternative finance bond arrangements. That means that HMRC has an interest in the property registered with the relevant Land Registry. The charge will enable it to recover any SDLT and related interest and penalties that might be due in the event of default or avoidance. Without the amendments, the legislation would not function in all the Land Registry regions in relation to the registration of the charge. The amendments do not increase the scope of the legislations anti-avoidance provisions, but simply mean that the provisions will work as intended in all three of the Land Registry regions. I believe that they are uncontroversial, but I hope that my wider comments on schedule 61 will be of benefit to the Committee.

Mark Hoban: I, too, welcome you to the Chair of this final Committee sitting, Mr. Atkinson. I listened to the Ministers broad remarks about Islamic finance. I do not have any remarks to make about the amendments, but I have some questions about the schedule. I hope, therefore, that this can be rolled into a schedule stand part debate. There is a broad agreement on the matter

Sitting suspended for a Division in the House.

On resuming

Mark Hoban: between both Front Benches, Mr. Atkinson. [Laughter.]
The Financial Secretary and I, along with the hon. Member for Leicester, South, took part in a panel discussion on Islamic finance at the East London Muslim Centre a few months ago. There is a broad degree of understanding across the House about the right approach to Islamic finance and the importance of it, not just to the Muslim community in this country, who are able to purchase products that they would not otherwise be able to obtain, but to the financial services sector.
When at the East London Muslim Centre, I remarked that we were within sight of the Square Mile. A number of investment banks and other businesses have sharia-compliant products on sale through windows, as well as having the stand-alone institutions that the Economic Secretary referred to. It is right to highlight the fact that London is leading the western world in this area, based not only on the innovation and skills that we see in the City of London, but the regulatory and tax approach that has been adopted. The Financial Services Authority has described its approach as:
no obstacles, no special favours.
Sharia-compliant products should therefore be on a level playing field for both tax and regulation. That sentiment was echoed in the 2008 Treasury document which said,
We will not champion Islamic finance over conventional finance, but will instead strive to create a level playing field between Islamic and conventional finance.
We support that approach.
This is the fourth Finance Bill where these matters have been debated and we have always sought a degree of consensus. The only area where there has not been consensusit is more a matter of emphasis than fundamental disagreementis the issue of the sovereign sukuk product, on which I intervened on the Minister. Last years Finance Bill Committee debated the loose ends around the product when the Government introduced paving legislation in that Bill to introduce a sovereign issue. One loose end was cost. Time and again, people who specialise in the area make the point that it would assist the wider market if there were a sovereign sukuk issuance. We need to ensure, if people go down that route, that we fully understand the product and its cost implications.
Schedule 61 is a development of legislation established over recent years. A basic tax framework was set out in the Finance Act 2007 so that income payments on alternative finance and investment bonds are treated as a tax deductible expense of the payer and income of the recipient and receive the same tax treatment as interest. However, there were three outstanding issues. The first was the treatment of the sale of property and whether that was subject to stamp duty land tax. There would be a charge on the initial sale to a special purpose vehicle and a further charge when the special purpose vehicle sold the building back to the originator. If a conventional bond had been used, no stamp duty land tax would have been charged on the second purchase.
The second outstanding question was whether there is a capital gains tax charge on that sale to the special purpose vehicle and whether a further charge would arise on the appreciation in value of a building while it was being held by special purpose vehicle. Again, the issue and redemption of a secured conventional bond would not have given rise to that second charge on disposal. Finally, there was the matter of capital allowances, which the Minister has referred to. The structure of the bond gave rise to a number of possible additional tax charges that would not have occurred on a conventional product. It is right to ensure that the treatment is the same, not just for the interest but for all the underlying taxes that might be triggered by one of the bonds.
In the 2008 Budget, the Government announced they would issue a consultation document on stamp duty land tax. That and the impact assessment highlighted that the SDLT places an additional barrier to issuers, compared with the conventional equivalent. That extra charge therefore puts the structure at a considerable disadvantage relative to conventional securitisations. The principle behind this years changes is to facilitate the use of AFIBs on real property, so that those bonds will not incur SDLT, and so that entitlements and capital allowances will be preserved.
The legislation is detailed, but I will not go through the schedule in detailthe Committee will be relieved that to hear at quarter past 2 on a Thursday afternoon, with the end of our proceedings in sight. However, a couple of points have been made to me in relation to the detail, and I would like to explore them.
Paragraphs 3(2) and 20(2) use the word control and risk rendering the definition of acquiring control to be somewhat circular. Would not
the right to manage or direct the disposal of bond assets
be a better phrase than
the right of management and control of the bond assets?
Paragraphs 4(2) and 21(2) use the phrase transfer sufficient rights, which appears to mean that the bond holder must transfer ownership of the bond. However, it has been suggested that it would be preferable, and as effective, if bond holders could also waive part or all of their control rights, rather than have to divest themselves of economic ownership to satisfy the exclusion.
Paragraphs 4(3) and 21(3) refer to a bond holder underwriting a public offer. Should the definition not include sub-underwriting as well?
Paragraph 5(9) sets out the quantum of the charge, that being the SDLT that will be payable, plus interests and penalties, assuming that SDLT is due and payable but not paid. The inclusion of penalties creates some uncertainty in determining the amount of the charge, particularly as the imposition of a penalty and the level at which one might be imposed are dependent on a number of factors; the penalty is therefore not easily predicted. The removal of penalties from the quantum of the charge would not prevent the imposition of penalties in appropriate situations, so penalties could still be levied, which is important, but it would pre-empt commercial uncertainty in the operation of satisfactory charge, which is a condition of relief.
In the event that SDLT relief is withdrawn, paragraph 7(4) provides for the amount chargeable to SDLT to be the market value of the interest at the time of the first transaction. The substitution of market value for actual consideration normally applies when the purchaser and vendor are connected. Transactions between non-connected parties are generally based on actual consideration. It is unclear why the apparently penal approach of applying market value regardless of the connection has been adopted. Perhaps the Minister could clarify that.
Paragraph 17 provides for the transfer of an asset by Q to any person other than P to be treated as a disposal or balancing event in relation to P for capital allowances purposes. However, if Q transfers the assets to Ps group member, there should be provision in the legislation for P and the group transferee to make the same elections for capital allowances purposes that would be available had a transfer been made by P directly to another company. I suppose that this is one of those paragraphs where one has to mind ones Ps and QsI couldnt resist that one. [Hon. Members: Try harder.] I will try harder. I only have another two paragraphs to go, so the possibility of further bad jokes about schedule 61 is quite limited.
Paragraph 22 sets out an anti-avoidance test for the reliefs provided under the schedule. We do not have any objections to a test, but will the Minister consider whether there should be a statutory clearance mechanism? The Minister has already indicated that he is very open-minded in considering these matters; I want to push him further and ask him to tell us the outcome of his consideration. Given the sums involved in the issue of the bonds and the time that goes into such matters, rather than there being some uncertainty about anti-avoidance measures, it would be helpful if there was some mechanism to get clearance from HMRC to ensure that it is happy with the bond. The same sort of logic is used for transactions of securities or indeed share exchange.
There are some very detailed points to consider. However, we go back to the importance of ensuring that there is a level playing field for alternative finance investment bonds compared to conventional bonds. We must see whether we can continue to harness the ingenuity of those who work in the City to maintain the promotion of London as a centre for Islamic finance.

Ian Pearson: There has been a widespread welcome for the actions that the Government have taken previously and in this Finance Bill with regard to Islamic finance. To quote a partner from Norton Rose:
These tax changes will give a considerable boost to the UK Islamic Finance initiative and ensure that in these difficult times alternative sources of finance will be available in the UK.
I could quote a number of other comments. Clearly, people who follow these matters have been very supportive of what we have been trying to achieve as a Government and there has been an ongoing process of discussion and dialogue between policy officials and experts in this area.
Let me respond specifically to the comments made by the hon. Member for Fareham. First, on the point of control and the waiving of rights, investors can hold as many bonds as they wish, provided that those bonds do not carry the right of management and control of the bond assets. The ability to waive the rights of management and control subsequently would require the agreement of the bond issuer and it would potentially create two classes of bond, which could relate to uncertainty among investors, the bond issuer being Q as opposed to P, who would be the originator, as is explained in the Bill.
HMRC has been advised that there is no requirement within Islamic law for these bonds to provide for management and control of the bond assets. If such rights are then provided, they can open up significant anti-avoidance possibilities. So we believe that the proposals contained in the Bill are clear and unambiguous, providing the certainty that is requested by industry.
He suggested some alternative wording. I note that the hon. Gentleman did not table an amendment, but officials will have noted what he has said. If there is any way in which the wording of the clause could be improved to make it clearer we would certainly look at that, although at the moment I doubt that improving the wording would be possible.
The Bill provides relief for sub-underwriters. It defines an underwriter as anyone in the context of the offerer of rights under a bond who will:
agree to make payments of capital under the bond in the event that other persons do not make those payments.
That definition includes sub-underwriters.
On the issue of penalties and why they are included in the charge, I again want to say that there are significant avoidance risks associated with this relief, which HMRC has sought to address by introducing the charge as a deterrent to the abuse of the legislation. The charge provides a security required to protect Exchequer revenue. In the event of avoidance or in the event of the conditions of the relief not being complied with, the relief may be withdrawn. In such circumstances, the charge over the land will ensure that any tax that is due can be collected.
On the point about market value, the market value rule is again an anti-avoidance provision, which is intended to ensure that the arrangements are not used to transfer land to a third party without the payment of the right amount of stamp duty land tax. Without that rule, the value of the land could be artificially suppressed and any subsequent default leading to the withdrawal of relief would result in SDLT being paid on the suppressed value, which obviously would not be right.
On anti-avoidance in general and the point about the statutory clearance mechanism that the hon. Gentleman raised, I can confirm that HMRC operates some statutory clearance systems. In addition, it operates non-statutory clearance systems to provide certainty for businesses operating in the UK. Where there is material uncertainty about the tax consequences of a transaction or event, businesses can use the service to obtain written confirmation of HMRCs view of the application of tax law to that specific transaction or event. That arrangement will cover alternative finance investment bonds. I know that some experts are concerned about statutory clearance, but I hope that my clarification is of use and that it makes the position very clear.
I think that I have covered the points raised by the hon. Member for Fareham. Alternative finance investment bonds are an important area, and it is right that that market continues to develop. The legislation before us today will help that to happen.

Amendment 321 agreed to.

Amendments made: 322, in schedule 61, page 424, line 15, at beginning insert in England and Wales,.
Amendment 323, in schedule 61, page 424, line 23, leave out paragraphs (a) and (b) and insert
(a) is a first charge on, or a security ranking first granted over, the interest transferred to Q,
(b) is in favour of the Commissioners for Her Majestys Revenue and Customs, and.
Amendment 324, in schedule 61, page 426, line 12, leave out imposed or security granted and insert or security registered.
Amendment 325, in schedule 61, page 430, line 19, leave out imposed on it, or security granted over it, and insert or security registered.
Amendment 326, in schedule 61, page 430, line 20, leave out that condition is complied with and insert
(a) Q provides HMRC with the prescribed evidence that condition G is met in relation to the original land, and
(b) condition D is met.
Amendment 327, in schedule 61, page 430, line 23, leave out imposed on it, or security granted over it, and insert or security registered.
Amendment 328, in schedule 61, page 430, line 25, after that, insert
(a) condition G is met in relation to the original land, and
(b) .
Amendment 329, in schedule 61, page 430, line 36, after charge, insert on land in England and Wales.
Amendment 330, in schedule 61, page 430, line 38, leave out and.
Amendment 331, in schedule 61, page 430, line 39, after security, insert granted over land in Scotland.
Amendment 332, in schedule 61, page 430, line 40, at end insert and
(c) in the case of a charge on land in Northern Ireland, notify the Registrar of Titles of the discharge..(Ian Pearson.)

Schedule 61, as amended, agreed to.

Clause 123

Mutual societies: tax consequences of transfers of business etc

Question proposed, That the clause stand part of the Bill.

Mark Hoban: I wish to put just a brief question to the Minister. We have debated in other arenas the transfers of mutuals, but we have never discussed the impact on taxation of those transfers. Clearly, these are all enabling powers because regulations will be made. How far have the Government progressed with the consultation on these regulations?

Peter Bone: Subsection (6), on page 63, states:
Regulations under this section are to be made by statutory instrument.
Normally, it says whether the SI will be passed by the affirmative or the negative procedure. I do not know whether it is clarified in subsection (7), but it is usually defined on the first mention of the statutory instrument. Will the Minister clarify that for us now?

Ian Pearson: I am looking sideways rather than askance to confirm the answer to the point raised by the hon. Member for Wellingborough. I am informed that the statutory instrument will be passed by the negative procedure.
As the hon. Member for Fareham notes, the clause introduces a power for the Treasury to make regulations relating to tax consequences on the transfer of business by mutual societies. Again, the intention is to ensure, as far as is possible, a level playing field for future mutual society transfers. The power will have an effect on transfers of business from 22 April 2009. The precise scope of the regulations is still under discussion. I cannot be specific about when the regulations will be introduced, but it will be as soon as possible. We want to allow mutual societies to take full advantage of the new transfer rules.

Mark Hoban: I am not quite sure about the timing of the transfer of Britannia building society to Co-operative Financial Services. Will there be uncertainty in the tax treatment of that transfer until the regulations have been laid?

Ian Pearson: I do not believe that there is uncertainty. The clause provides the basis for removing uncertainty from mutual societies and delivers on our commitment to facilitate transfers under the Finance Act 2007. As such, we believe that it should encourage expansion in the sector. That is why we want to see the clause as part of the Bill. I am happy to consider further the point that the hon. Gentleman makes about Britannia. Clearly, we do not want to see any uncertainty. That transfer has been approved by shareholders. Other building society mergers and takeovers have also taken place prior to this legislation, and we do not believe that there is problem with any of them.

Question put and agreed to.

Clause 123 accordingly ordered to stand part of the Bill.

Clause 124 ordered to stand part of the Bill.

Peter Atkinson: We now move to the new clauses. Hon. Members may remember that they debated new clause 3 on Thursday 14 May. As a result, I think that the Opposition requested a Division on it.

New Clause 3

Thresholds for residential property
(1) A land transaction is exempt from the charge to stamp duty land tax if
(a) it is a relevant acquisition of land which consists entirely of residential property,
(b) the relevant chargeable consideration for the transaction is not more than £250,000, and
(c) the purchaser is a first time purchaser.
(2) In paragraph (1)(a) a relevant acquisition of land means an acquisition of a major interest in land other than
(a) the grant of a lease for a term of less than 21 years, or
(b) the assignment of a lease which has less than 21 years to run.
(3) In paragraph (1)(b) the relevant chargeable consideration for the transaction means
(a) the chargeable consideration for the transaction, or
(b) where the transaction is one of a number of linked transactions, the total of the chargeable consideration for all those transactions.
(4) The Treasury shall by regulation define the meaning of first time purchaser..(Mr. Gauke.)

Brought up, and read the First time.

Question put, That the clause be read a Second time:

The Committee divided: Ayes 8, Noes 16.

Question accordingly negatived.

New Clause 5

Mileage allowance payments
(1) Section 230 of ITEPA 2003 is amended as follows.
(2) In the table in subsection (2), for 40p substitute 45p.
(3) Insert at the end of subsection (6)
(7) The Treasury shall publish annually a report setting out its assessment of the impact of the rates under subsection (2) on the level of participation of volunteers in community transport schemes.
(8) A report under subsection (7) is subject to approval by resolution of the House of Commons..(Mr. Browne.)

Brought up, and read the First time.

Jeremy Browne: I beg to move, That the clause be read a Second time.
New clauses 5, 8 and 9 are all in my name, and I hope that they will provide a stimulating opportunity for the Committee to consider how the law can be improved to the benefit of many of our constituents. New clause 5 amends section 230 of the Income Tax (Earnings and Pensions) Act 2003, which contains the rate for mileage allowance payments. I am sure that many Committee members will be familiar with these rates, not least because, as I understand it, they apply to Members of Parliament. However, the rates are: 40p a mile for a car or van for the first 10,000 miles within a tax year and 25p for any subsequent miles; 24p for a motorcycle, and 20p for a bicycle. New clause 5 makes two simple amendments to section 23: to increase the relief rate for cars for the first 10,000 miles from 40p to 45p a mile, and to insert a requirement at the end of the section for the Treasury to publish an annual report assessing the impact of the rate level on community transport scheme volunteers.
The new clause is fairly straightforward, so I do not wish to speak at length, but I shall briefly explain my motivation for proposing both measures. The HMRCs own guidance states:
the tax-free mileage allowances are intended to give tax relief for amounts that represent fair reimbursement for car use.
That is a crucial point. There is a tendency, in some minds, to assume that the rates have been held down as an environmental measurethat they have been kept at the same level and not had inflation taken into account because the Government wish to disincentivise people to use cars, in particular. The HMRC guidance makes it clear that that is not a motive. There is no environmental dimension to current policy. It is designed to achieve something perfectly reasonable: it is meant to reflect the costs of motoring accurately.
I think that everybody accepts that a ceiling is needed, because the provision could act as a tax avoidance scheme if a large amount of money was reimbursed for each mile driven. At the same time, there is recognition that some reimbursement is appropriate. I am not seeking to change the figure for the mileage over 10,000 miles a year. Most people accept that there are fixed costs and that the per mile cost of motoring decreases. One may wish to make the case that the level should be 8,000 miles or 12,000 miles, or make the case for any other number, but 10,000 miles is a fairly reasonable amount to set it at before the rate comes down. Therefore, I have decided to leave that figure where it is.
The only change is an extra 5p on the allowance for the first 10,000 miles. It is reasonable for those who have to drive for business to be reimbursed at a fair rate, but, in the next minute or two, I want to concentrate on people who volunteer their services and also enjoy relief at the current rate. I shall give a couple of examples; in our constituencies there are all kinds of voluntary organisations in which people give up their time to drive people to hospital appointments and so on.
Until recently there was no high-level cancer treatment in Taunton, we are pleased that there is now a new cancer centre, which provides treatment in the vast majority of cases, but that is a new service. Before that, people had to go to Bristol daily for complicated cancer treatment. Bristol is almost exactly 50 miles from Taunton, so the round trip was 100 miles. Volunteers committed to collecting two or three patients from different parts of the town, driving them to Bristol, waiting while they have their treatment and then driving them back to Taunton. That is extremely generous in terms of time and willingness to incur costs. Their mileage costs are, rightly, eligible for reimbursement, but I do not want such people to feel disincentivised to make that noble gesture on behalf of their community because they feel that the tax-free allowance on mileage does not accurately reflect the cost incurred by them.
There are other volunteers, who may not drive such long distances, but who may, for example, routinely collect elderly residents and take them somewhere. It may be that such residents one opportunity a week to go out and socialise is to attend a clubwe were talking about bingo this morningor maybe an informal bingo session in a village hall. The driver is eligible to be reimbursed, but obviously cannot be paid more than 40p a mile for the first 10,000 miles because they would be eligible to pay tax on that mileage.
The 45p per mile level was not arrived at particularly scientifically. It is difficult because one can make calculations on a number of different levels. To a large degree, it obviously depends on the value of the car and the degree to which it is depreciating, on the fuel consumption and, now that we have differential vehicle exercise duty bandings, it depends which band the car is in. One could justify all kinds of different figures. I have used 45p because the level has been at 40p for many years and all Committee members will accept that the real costs incurred by motorists are higher now than when the 40p level was introduced.

Peter Bone: I am grateful to the hon. Gentleman for bringing this matter to the Committees attention. It is regularly brought up in my constituency, especially with regard to volunteer drivers. There was a period when the volunteer drivers in my constituency were unwilling and were really at a financial disadvantage. I want to clarify whether the hon. Gentleman is suggesting that the Government look at the matter through the new clause and perhaps come back with a differential rate that is higher for volunteers and charity workers.

Jeremy Browne: I am grateful for the opportunity to clarify my intentions. The hon. Gentleman is completely right. I do not want to imply that the motivation of the people I am talking about is financial. Their commitment is huge and the reimbursement, against the time they commit, is minute. I do not want people to be disincentivised from making that sort of commitment.
The issue also applies to businesses and others, particularly in a rural community. Most of the villages in my constituency have very infrequent bus services. It would not be feasible for somebody who needs to visit a number of people who are homebound, for example, to undertake a series of journeys on regular bus services. Such people are often required to use their own car as part of their paid job, rather than one supplied by a company. I am, therefore, talking not just about volunteers but about people who quite legitimately incur mileage as part of their work. I do not want them to be penalised either.
As I said at the beginning, there are two purposes to new clause 5. The first is to increase the rate from 40p to 45p for the reasons that I have set out. I am quite willing to hear the Minister concede that 45p is not enough. If she suggests another figure, we shall be willing to listen to that argument. I can see that there might be a case for a rate of 50p, for example, but I suggest 45p. The second purpose is to seek a specific impact assessment for the necessary rate to make sure that community transport scheme volunteers are not disincentivised in their desire to serve the people in their area. I hope that new clause will enjoy the support of the Committee and the Government.

Mark Todd: I commend the hon. Gentleman for raising the general issue. We may well hear that there needs to be a little more thought on how to address it, but I have certainly had constituentsvolunteer driversraise the issue with me. I would want to focus the issue pretty firmly on that sector. The difficulties that they face in not making their act of volunteering rather costly to themselves should, of course, be our main concern. A volunteer car scheme in my area offers a number of services. It can take someone shopping, to hospital or to a doctors appointment. I represent a rural area, so journeys to hospital are sometimes lengthy. There is also a community transport service operating minibuses and larger vehicles. It is a concern. Volunteers sacrifice a large amount of their time; it is for them to make a judgment and we are very welcoming of it. However, to add a material financial penalty, which I have been persuaded could occur in some instances, is not our intent. Our intent is to encourage volunteers to offer such services to people. I hope that the Government will at least give some careful thought to the issue, if not actually concede some ground on new clause 5.

David Gauke: I note that the hon. Member for Taunton says that new clause 5 is the first of three clauses in his name. Of course, the lead name on all of the new clauses is that of the hon. Member for Twickenham. There was some excitement on our Benches that he might make an appearance to speak to the new clauses. I have been a member of the Committees on the past four Finance Bills, as has the hon. Member for Twickenham, and I was hoping that we would see his first appearance in those four years.
Like the hon. Member for South Derbyshire, I welcome new clause 5, as it enables us to highlight this matter. The hon. Member for Taunton rightly says that there are two components to the new clause, the first of which would increase the rate under the approved mileage allowance payment scheme from 40p, which has been the rate since 2002, to 45p. In the time since 2002, by and large the cost of motoring has gone up. The cost of motoring varies, of course, depending on what happens with the price of petrol. The price of petrol was a particularly important issue a year or so ago, when it was higher, and I received a fair number of representations about it. Perhaps there is an argument for a fuel duty stabiliser to reduce the volatility of the cost of fuel. However, we will not go there today.
I believe that in 2007 Ministers promised a review, in discussions with businesses on the 40p rate and whether it should be changed. However, nothing in particular came of that. Perhaps the Exchequer Secretary could tell us whether there are any ongoing discussions on that matter; it is clearly a matter that must be kept under review. I would also be interested to know the financial implications of new clause 5. Again, I hope that she can inform the Committee of those implications.

Jeremy Browne: Perhaps I should have mentioned this point myself, but new clause 5 clearly has financial implications although it is hard to predict them precisely because there may be some behavioural change. Having said that, however, there may be financial implications in not going forward with the new clause. If volunteers are disincentivised from driving people so that they can benefit from essential services, there may be an obligation on social services departments to do that work instead, at a greater cost.

David Gauke: That is a fair point. The figure involved here is quite difficult to quantify, but there is a legitimate concern about it.
The second element of the new clause is the situation with volunteers. I agree with the remarks of the hon. Members for Taunton and for South Derbyshire about the importance of volunteer drivers. As it happens, this week I was able to invite Mrs. Helen Dean, a volunteer driver for one of my local charities, the Watford Peace Hospice, to the MP Heroes tea party, which was held on Tuesday. A number of hon. Members in the Committee from all parties were able to take part in that event. Mrs. Dean, like many other volunteers, does tremendous work in helping charitable organisations. I am sure that all members of the Committee would unite in saying that without the contribution of volunteers, charities would find their work much harder and the demands on elements of the public service would be greater. So we should acknowledge the contribution of volunteers.
I am grateful to the hon. Member for Taunton for highlighting the matter of volunteers. Clearly, it would be most unjust if those individuals faced a financial penalty for their good work; it is right that we look kindly on such contributions to society. We would be interested to hear the Governments response to the new clause, in particular whether it is workable. None the less, the issue of volunteers is worth highlighting.

Peter Bone: I should declare an interest at the outset, as I drive a biofuel car, which is considerably more expensive than a petrol car and therefore I would benefit from a higher rate if it was granted.
The position of volunteer drivers has been discussed extensively already and it is a very important matter in my area. I agree with the hon. Member for Taunton that it is not a question of providing a financial incentive for volunteer drivers; instead, it is a question of those volunteers getting back what they lose by doing that type of driving.
The wider issue is what the Revenue says at the beginning, that the tax-free mileage allowance should effectively be the cost to the taxpayer of using their car while on business. That is the purpose of the allowance. In the past, many years ago, everyone used to have a company car and there were enormous problems in working out taxable benefits.
Sarah McCarthy-Fryindicated dissent.

Peter Bone: I see that the Exchequer Secretary disagrees, but I am sure that she enjoys her Government car. For most people in business, there was an attraction in their company providing a car, which they used privately. However, there was then a problem of taxable benefit in terms of how much of the petrol use was personal, and the calculations became extremely complicated. A tax-free mileage allowance led to habit switch: people bought their own vehicle and reclaimed the cost of using it on business through the allowance.
The question now is: has the cost changed? If the cost remains roughly 40p a mile, that is fine, but have the Government done any research in conjunction with car organisations, such as the Automobile Association, on the actual average cost of driving a mile? If the real cost is something like 70p per mile, the allowance needs to be looked at again. It cannot be right that the taxpayer does not get reimbursed for the full cost of using his vehicle while on business. Will the Minister tell us what information the Government have on the subject? If the actual cost is considerably greater than the Revenue allows for, that does not tie up with what the Revenue says is supposed to happen.

Sarah McCarthy-Fry: I welcome the debate on the new clause, which has raised some important questions. I will deal with the rate of the mileage allowance payment first and discuss volunteers later. I do not want people jumping up and saying, What about the volunteers? when I am talking about the mileage allowance.
The allowance is currently calculated at 40p a mile, which is the rate at which employers can reimburse their employees for using their private cars for business journeys without that reimbursement being taxed. The rate is set to reflect broadly the cost of business mileage, including the costs of fuel, maintenance, depreciation and insurance. Let me make it absolutely clear that it is not intended to be equivalent to some overall assessment of the cost of motoring, but to reflect the specific additional costs of driving businesses journeys in an employees private car. The current rate of approved mileage allowance payments of 40p a mile is a reasonable reflection of those business motoring costs. Of course, there will be some motorists for whom the rate is either above or below their actual costs, but over the whole UK car fleet, it represents a fair and, if anything, generous rate, according to our calculations.
One effect of increasing the AMAPs rate would be to provide an incentive to those employees whose actual costs are less than the proposed 45p a mile rate to drive further in order to profit from the mileage reimbursements. That is not the purpose of the allowance, and it could lead to an increase in unnecessary driving and thus to an increase in overall carbon dioxide emissions, contrary to the Governments environmental objectives.
We have been asked why we do not uprate the AMAPs rate in line with the retail prices index. Since the AMAP was introduced in 2002, some elements of the overall costs of motoring, such as fuel costs, have increased, but over the same period capital costs have fallen and the fuel efficiency of cars has improved. Furthermore, the reduced cost of fuel per mile driven is taken into account when calculating the overall costs of business mileage. We review the AMAPs rate annually as part of the normal Budget cycle, but we have concluded that, as the rates have to cover a wide variety of drivers and were never intended to reflect the actual costs of motoring for every car, the present rates are sufficient to cover the business motoring expenses of most drivers.

Graham Stuart: Do the Government publish the calculations on which their estimate that the present rate is a fair amount is based? If not, will the Minister ensure that they are published in future, so that we and our constituents can see for ourselves that there is a reasonable and rational basis for the calculations?

Sarah McCarthy-Fry: I will look into that. I should also like to point out that the AMAPs rate does not restrict how much employers can reimburse their employees. Employers remain free to pay their employees whatever reimbursements they wish, and employers across the country reimburse their employees for a range of expenses at various different rates.
The AMAPs rate merely limits the amount that employers can reimburse employees tax-free. Without such a limit, employers would be free to use travel expenses as a form of untaxed remuneration, while paying low salaries to their employees to avoid paying a fair amount of income tax and national insurance. There is no justification for increasing the AMAPs rate as proposed in the new clause, especially at a time when maintaining sound public finances must be a central fiscal objective for the Government.
I want to move on to volunteers

Jeremy Browne: The hon. Lady mentions the financial cost of the new clause, but is moving on without having told us what it is. I would be grateful to be told, as it is easier for her Department to make an assessment than it is for me. That would surely have a bearing on Members considerations.

Sarah McCarthy-Fry: The estimated cost is £225 million a year.
Many hon. Members spoke about the impact on volunteers. The implication of the new clause and the comments of many hon. Members is that the current AMAPs regime may be a barrier to volunteering. Let me place clearly on the record my appreciation of the voluntary sector and the people who give up their time to help build a stronger society and are selfless in their generosity to others. Many hon. Members have spoken about that this afternoon. The Government would never want to do anything to undermine that spirit of giving or the wider culture of volunteering. In particular, we have never wished to intervene in reimbursements paid to volunteers, whose work is highly valued, in order to tax them. It is right that those who freely give their time and their vehicle to voluntary work should be able to reclaim their motoring expenses. For that reason, volunteers are not taxed on payments they receive if they just cover reasonable expenses.
As a convenience, the Government allow voluntary organisations to reimburse volunteers for mileage driven in the course of their voluntary work at the statutory AMAPs rate. If they choose to do that, voluntary organisations need not keep detailed records or produce detailed evidence to HMRC to show that the reimbursement payments only cover motoring costs actually incurred. However, using AMAPs in that way is entirely a matter of choice for voluntary organisations; if they so wish, they have the option of reimbursing volunteers the precise actual costs incurred through driving in the course of their voluntary work. However, full records would have to be kept and produced to HMRC to ensure that only the actual costs of driving were reimbursed. For voluntary organisations, therefore, AMAPs are an optional convenience and I do not think that using that system hinders or impedes the work of volunteers.

Mark Todd: The Minister anticipates the difficulty of the answer that she has given. The representations that I have had make it clear that while it is possible to reimburse the actual cost, many small voluntary organisations find it an uncomfortable experience to keep records to feed to HMRC, which suggests they would only do that in extremis.

Sarah McCarthy-Fry: I take on board my hon. Friends point, but the facility is there if voluntary organisations are willing to use it.

David Gauke: Further to the intervention by the hon. Member for South Derbyshire, the same thought crossed my mind when the Minister made her comments. Does she not recognise that the last thing volunteers want is a big bureaucratic burden? They are giving up their time and effort; they do not want to be faced by endless form-filling. That simply does not address the problem.

Sarah McCarthy-Fry: I accept the hon. Gentlemans point but it does not detract from the principle that the facility is there if they are able to use it. There may be ways the process could be made easier. Perhaps the voluntary sector could work together to look at how to do itperhaps by using a standardised form. There are ongoing discussions and all taxes are kept under review as an inevitable process. I re-emphasise that we value the work done by volunteers. I do not think the new clause will help.

Peter Bone: Will the Minister give way?

Sarah McCarthy-Fry: Not at this point. I urge the Committee to reject the new clause.

Jeremy Browne: Before I respond to the debate, I am happy to give way to the hon. Member for Wellingborough while the thought is fresh in his mind.

Peter Bone: It is disappointing that we are rushing at this stage of the Bill. Does the hon. Gentleman agree that it would be very simple to allow volunteer drivers to have an exemption or to make the rate 60p a mile for them. There would not be any form-filling involved; it would be a straightforward exemption. There would be no significant loss of money to the Exchequer and it would be a simple and fair way to help those drivers. I urge the Minister to take that point on board.

Jeremy Browne: I am pleased that I gave the hon. Gentleman an opportunity to make that additional point.
I am now in a slightly weird position, in that I am indirectly seeking to answer for the Minister, although she might find that reassuring. However, I am not sure that it would be as simple to have an exemption as the hon. Gentleman believes, because I suppose that there would have to be some process for deciding whether the mileage was being claimed for voluntary driving or for some other form of driving. My preference would be to stick with the arrangement that I propose in new clause 5.

Mark Todd: Perhaps the hon. Gentleman is encouraged by what may have been a throwaway line by the Ministerthat there may be a simple way in which voluntary organisations might be able to communicate any variance from the rate to HMRC and that negotiations with the voluntary sector might yield a mechanism for doing that. I must say that I am sympathetic with that point in the new clause, although I am not generally sympathetic to the arguments about business motoring and providing support for that. My focus is firmly on the specific issue of volunteer drivers.

Jeremy Browne: I am genuinely grateful to the hon. Gentleman for that point, because I think that it is well meant and I think that there is a common view in the Committee that we want to do everything that we can to encourage people to contribute their time in that way. However, he also made the point earlier that a lot of very small charities are not just put off by the administrative burden that they face; they are also slightly frightened off by all the talk about HMRC. We all know that, of all the officers in a voluntary group, it is always hardest to find a treasurer, because people are worried about what the implications may be for them, in particular whether they would be legally held to account if there were any irregularities even if they had had the best intentions.
My fear is that, even if the rules appeared to HMRC to be fairly straightforward and were regarded by a company as being straightforward, there would still be a disincentive for voluntary organisations and individuals who wished to volunteer their time to go down that path, because they would fear that they would inadvertently fail to comply with the rules. On that basis, I think that the system that I propose probably offers the best way forward.
I urge the hon. Member for South Derbyshire not to be completely dismissive of the case for people who are acting in a business capacity. As I said earlier, I am not just talking about people who make lots of journeys up and down motorways at 70 mph. It is possible that some of those people, especially if they have a car with low fuel consumption, might find out that the costs of their driving worked out at less than 40p a mile for their first 10,000 miles. However, there are some people in different circumstances. The example that I gave was of people in rural communities where there is no alternative form of transport to the car.
For example, if someone in a rural community was performing some nursing-type role and was required to use their own car to go from house to house to visit people who needed a daily visit to help them to wash or change their clothes, or for some other form of personal care, that person might find, especially if they were travelling on rural roads or if they had to carry equipment and therefore needed a slightly bigger car, that the cost, in terms of the reimbursement at the rate of 40p a mile, was not an accurate reflection of the cost that they had incurred. When I talk about business, I do not want the hon. Gentleman to assume that that I just mean well-paid people driving very big cars down motorways.

Mark Todd: Nor did I imagine that the hon. Gentleman meant that. However, the concern that I have is perhaps the one that the Minister shares. My focus is on a narrow community of volunteer drivers, but if the proposed rate was applied generally, there would be an incentive for drivers to change their behaviour to achieve a maximisation of the return that they could make tax-free from their activities. Also, I am not persuaded that the general cost of driving has risen sufficiently over a period of time to merit a general increase in the rate.

Jeremy Browne: If new clause 5 is accepted in a few minutes time, it is possible, I suppose, that somebody who currently drives 8,000 miles a year as a volunteer may look at the arrangements and say, Wait a second. If I drive another 2,000 miles, and I get an extra 5p per mile, that extra £100 a year would be an incentive to do additional voluntary work. If that was the case, we might regard that as £100 well spent. There might be environmental considerations, because that persons extra voluntary activity would potentially lead to a greater amount of pollution. The point is that the matter is not quite as clear cut as the hon. Member for South Derbyshire implies and I am not convinced that an extra 5p a mile would have that much effect on behaviour.
The Minister set up a straw man when she said that there needed to be some sort of limit because otherwise people would be paid very low salaries but incur very high mileage costs. Everybody accepts that there needs to be some limit. The Minister made the point in order to knock it down. It has not been made by anyone else. I am sceptical about the estimated cost that she quoted. In the absence of detailed workingsa point raised by the hon. Member for Beverley and Holdernessit is quite hard to know on what basis those costs were calculated. There is a potential cost of disincentivising people to undertake either business or voluntary activity. I am not certain that the Minister has calculated the potential loss of revenue if such activity is disincentivised.
On the basis of all those points, and because our constituents probably think that we spend a lot of time discussing the issue without seeking to bring it to a head, I hope that we can have a Division and see whether the Government are persuaded by the argument.

Question put, That the clause be read a Second time.

The Committee divided: Ayes 2, Noes 17.

Question accordingly negatived.

New Clause 8

Private residential exemption from capital gains tax
(1) Part 7 of TCGA 1992 is amended as follows.
(2) In section 222(5) (relief on disposal of private residence) leave out paragraph (a) and insert
(a) the Commissioners must notify, in writing, the individual of the notice requirement in paragraph (aa),
(aa) the individual may include that question by giving notice to the inspector within six months from the date on which the notification under paragraph (a) was received but subject to a right to vary that notice by a further notice to the inspector as respects any period beginning not earlier than six months before the giving of the further notice,.
(3) Insert after section 223(2)
(2A) Subsections (1) and (2) do not apply where an individual has varied a notice under section 222(5)(aa) to the effect that an individuals previous main residence has been redesignated as their main residence..
(4) The amendments made by this section have effect for the tax year 2010-11 and subsequent tax years..(Mr. Browne.)

Brought up, and read the First time.

Jeremy Browne: I beg to move, That the clause be read a Second time.
New clause 5 was pretty straightforward, because I think everyone is able to grasp the difference between 40p a mile and 45p a mile. I am afraid that new clause 8 is rather less straightforward. It seeks to deal with what has been an extremely topical issue over the past few months, namely eligibility for capital gains tax on second residences.
The new clause does not refer to the practice of which many members of the public strongly disapprove, which is the very narrow issue of Members of Parliament designating one property as a second residence in order to claim their additional costs allowance and designating another property as a second residence for the purposes of capital gains tax compliance with HMRC. That is legal, although, people feel that in most cases it is morally dubious, at best. However, that is not the central thrust of new clause 8.
The new clause would amend the Taxation of Chargeable Gains Act 1992. When I looked into the issuewith some assistanceit proved to be rather more complicated than it first appeared. The new clause centres on sections 222 and 223 of the 1992 Act. Section 222 identifies what constitutes the principal residence and what constitutes other residences for the purpose of eligibility to pay capital gains tax. The section includes a requirement for a person to inform HMRC which residence is their principal residence, as well as other requirements relating to, for example, married couples and the consistency of their declarations on which residences are designated in which category.
Section 223 deals with the amount of relief and the rules whereby people can qualify for it. It is worth bringing one point in particular to the attention of the Committee, because some Members may not be aware of it. Under one of the provisions, if a second property is sold within three years of it becoming a second property, there is no eligibility for capital gains tax in that period. For example, somebody who has a single home may want to buy a bigger house in the next street, because they have an expanding family. They move swiftly to buy the house before they have sold their existing property, because the house is on the market and they are happy to pay the asking price. They do not have the time to make a chain arrangement, but they are fortunate enough to have enough money to support two mortgages for an interim period. My understanding is that the original property is not considered to be a second home for the purposes of eligibility for capital gains tax during that period.
The housing market may be picking up a little, but I think that people in areas where it is hard to sell properties would feel aggrieved if they had to pay substantial capital gains tax on a property that was only a second property in a technical sense, but that had been the family home until they moved. I understand the argument for having that three-year period, but many people might think that it is quite a long time; perhaps we could discuss what is an appropriate period. There is a problem in that, although the present system is reasonable in the circumstances that I have just described, it allows quite a lot of creativity and flexibility where people do not have those sorts of arrangements and where they own multiple properties.
I declare an interest, because I own two properties, but I have not flipped between the two for the purposes of my additional costs allowance, and I have never sold a property in my life. I have bought two, but I have not sold any, so I have never paid capital gains tax on any property transaction. I hasten to add that, rather than seeking to avoid it, I have not realised any capital gain.
What am I trying to do in the new clause? I am inserting two new paragraphs. The first is on the subject of the first part of my speech: the requirements to report to HMRC which property is the main home and which is the second home. At the moment, the requirements are not sufficiently prescriptive so there is, therefore, room for doubt and for people to be caught out unwittingly or to bend the rules in a way that we would disapprove of.
New section 222(5)(a) requires HMRC to write to the individual to inform them of the requirement to declare which property is their main property and, by implication, which is not their main residence for the purposes of tax. New paragraph (aa) reduces the two-year period to six months from the date on which the notification from HMRC is received. People moving house have many concernsmaking sure that they have their council tax and utility bills right and so onso some leeway in registering the change of status is reasonable, but two years is excessive; six months would be sufficient. Under my proposal, for the first time, HMRC would be obliged to write to the person from whom it required the information, so people would not be caught out unwittingly. I can imagine circumstances in which people would not realise that they were required to submit the information and I would not wish them to incur the wrath of HMRC unwittingly.

Mark Field: I congratulate the hon. Gentleman on putting his case pretty clearly. The rules are couched in that way, first, to avoid added bureaucracyhe has started down that path and I suspect that we will hear more about the bureaucratic necessity for an individual or HMRC to get in touchand, secondly, to recognise that peoples lifestyle changes over time, perhaps because of getting divorced, splitting up and so on, and it is not necessarily easy to say that that will be within six months or twelve. The three-year rule means that one does not have to worry about changes in circumstances or have to investigate an individuals intention at a particular time in their life. While perhaps an over-long period for the hon. Gentlemans liking, a three-year period is clear, and enables matters to be managed with clarity and with as little bureaucracy as possible.

Jeremy Browne: I am grateful for that intervention, because it allows me to clarify a point that I probably did not explain well enough the first time. Two separate points are being conflated. One is the three-year rule, which I mentioned earlier, and the other is the period in which people are not eligible to pay capital gains tax. I cited the example of somebody moving within their neighbourhood while still retaining ownership of the first property for an interim period.
The point that I was making before I gave way was about the two-year period during which HMRC ought to be notified of which property is the principal residence. We do not want it to be unclear which property is the main residence. If it was unclear, there would be an incentive for the individual to claim that whichever house they were selling and realising a capital gain on was their principal residence at that point. Many people would feel that that was unreasonable.
As I understand it, my new clause states that the individual must inform HMRC which property is the principal residence, unlike the current wording, which seems to say that the individual may inform HMRCthere is ambiguity. Trying to frame the new clause has been difficult because the current rules are somewhat ambiguous. Trying to amend a rather fluid and hard-to-pin-down arrangement is not easy. That fluidity and the difficulty in pinning it down make the rules open to abuse and, if I am being generous, broad interpretation, particularly by accountants, which means that the spirit of the rules can be infringed, even while abiding by the letter of the law.

Peter Bone: As Conservative Members are not whipped in Committee these days, it is always interesting to hear an argument before making a decision. I am not sure what nut the hon. Gentleman is trying to crack. I have experience of the previous recession, which was not as bad as the one we are in now. The house in which I was living fell considerably in value. When I had to move to a different part of the country, I could not afford to sell the first house at a loss, so I had to wait for it to come back up in value. Under the hon. Gentlemans proposal, I would have been penalised for that.

Jeremy Browne: There are two sections, both of which I will explain. If I do not explain the whole picture, there is a danger that someone as open-minded as the hon. Gentleman may not fully realise the merits of my case. I do not say that in a sneering way at all. The hon. Gentleman is one of the few Members whose vote is unpredictable on this Committee. Many Members could ask themselves why they bother to turn up at all because they vote as instructed. [Interruption.] I will not be tempted down this route. I suspect that few members of the Committee find slightly laughable the ritual of one side voting one way and the other side voting the other. As I say, the hon. Member for Wellingborough is commendably open-minded in many of his views.
I realise that peoples circumstances change, that they get jobs in different parts of the country, and that they get divorced and married. All those changes happen all the time. We all know that the rules are trying to establish that ones principal residence is not eligible for capital gains tax, but subsequent residences are. If that were not the case, one could, as an investment decision, accrue many different properties and not be eligible for capital gains tax on them when they are sold, whereas that individual would be eligible for capital gains tax if they had chosen to invest in something other than property.
We know what we are trying to achieve. In each individual case, one can recognise, in most instances, what is an appropriate interpretation of the law and where the rules are being bent. The difficulty is trying to frame in legislationno doubt the Government have faced this difficultythe wording that prevents people from treating the law in the opposite way to which it was intended but does not inadvertently trap people whose behaviour is entirely proper and in line with that just mentioned by the hon. Gentleman. That is the difficulty that I face. I hope that everyone is facing it because we all need the incentive to get this right.
The first part of the new clause is the requirement for people to inform HMRC which is their principal residence. Without that information, it is impossible to draw any further conclusions. That is what I was talking about a moment ago. The second part is to see how we can tighten up the rules on what has now widely become known as flipping. At the moment, when someone redesignates a property, they can claim that for a three-year period, they are not eligible for capital gains tax. That point came up earlier when I talked about the safeguard that is in place for somebody who has moved within their neighbourhood from what is essentially one first home to another first home, but who, for an interim period, owned two properties. The safeguard, which prevents that person from being eligible for capital gains tax, means that individuals can flipto use the new jargonthe residence and, therefore, qualify for the three-year exemption. They qualify even though the property was always their second property. They are being advised by accountants that that is an appropriate way to avoid capital gains tax, or a portion of it, on what was always a second property. That is hard to define. I propose that if people flip to a property and then flip back to the principal property, they would not then be eligible for the three-year period. It is still difficult because somebody with multiple properties who sells them on a rotating basis might be able to stay one step ahead of the tax man in terms of their tax liabilities. It is difficult to frame a law that would stop them from doing that. However, they should not be able to flip from their main property to the second one and back again in a way that enables them to qualify for a benefit that social attitudes would deem to be inappropriate and against the spirit of the law.

Mark Field: Although I admire what the hon. Gentleman is trying to achievealbeit with the caveats that I mentioned earlierhas he not summed up the problem? He might be able to stop somebody who has two properties from being able to flip, but he cannot stop the serial property owner who, through a buy-to-let operation, can flip through several properties. Such people just have to ensure that in any three-year period they do not designate the same property as the primary property more than once. The proposal is fine for the average person, but it could be used as a charter for buy-to-let operators and allow them to avoid tax.

Jeremy Browne: That is an entirely fair point. However, the people the hon. Gentleman describes avoid tax at the moment so I would not be making the situation any worse. This is a probing amendment.

Peter Atkinson: Order. It is a new clause.

Jeremy Browne: It is a probing new clause. I readily accept that getting the detail of such a proposal right would be difficult for anybody in Opposition, or indeed for the Government. However, it would be negligent of us not to explore this issue to see if the law can be improved.
The problem is similar to the inheritance tax argument with which we are familiar. The people who plan ahead and employ decent accountants can avoid paying a tax that those who do not plan ahead and do not use accountants do not avoid paying, even if their circumstances are the same. People think that unreasonable. It does not require a particularly sophisticated accountant to advise people to redesignate their properties to reduce substantially their capital gains tax liability in a way that goes against the spirit of the law. Such revenue is lost to the Exchequer and could have been used on debt repayment, schools, hospitals, police and so on.
People who own one property or who do not own any property think it reasonable that capital gains tax should be paid on the sale of a second property. They feel that the system that allows people to pick and choose whether they pay tax on a large proportion of their capital gain on a second property is unreasonable and ought to be more effectively policed. That is why we tabled the new clause. This is an important subject and I look forward to the contributions of the Minister and other hon. Members.

Greg Hands: This has been an interesting and entertaining debate so far. I congratulate the hon. Member for Taunton on tabling the amendment and on floating an interesting suggestion.
We have three broad areas of concern. First, some of the consequences of the proposal might not have been fully thought through. It sounds as though the hon. Gentleman would not disagree with that. Secondly, it will increase bureaucracy, particularly because of the number of additional letters. It sounds as though HMRC would have to send out a letter on the completion of any property transaction. If the problem is as big as he suggestsand perhaps it isthat might be reasonable. However, we should not underestimate the bureaucracy involved. At the same time, there would be an obligation for people to write to HMRC to detail any change in what they perceive as their residence. That might also be reasonable, but I fear that we would be adding a great deal of bureaucracy without knowing the size of the nut that we are trying to crack.
I also have a couple of concerns about the drafting, but I am getting more and more confused. I have spoken to two bodies that have concerns about the new clause, but they cannot agree between them what the problems are. Therefore, I will not discuss the drafting because it is likely to make us even more confused.
We are broadly sympathetic to the hon. Gentlemans intention to prevent the flipping of properties for capital gains tax purposes, seen most notably recently in the case of Members of Parliament. However, the measure will affect many thousands of peopleit is hard to tell how manybeyond MPs. Care is needed when making tax policy such as this. We would want to see far more extensive study of the impact of the proposed changes before we felt able to give our support. The status quo, as he pointed out, provides protection for those selling properties where, for example, they have ended up owning two properties at the same time due to a delay in the sale. It seems reasonable to have some protection for those who end up holding both properties, especially in the current climate.
My hon. Friend the Member for Wellingborough referred to the last recession. In the current climate there is likely to be a fair number of stalled property chains where people have ended up having two principal or primary residences. I do not think that the new clause is intended for them. It also might penalise people who end up selling homes or their principal or primary residence twice in the same year. I do not believe that that happens terribly often but I am sure it does happen, and we would not want to penalise that. We have sympathy with the motives and intention but want to see more study. We are not actively able to support the new clause at the moment but would like to see more intensive study carried out by HMRC, if this is perceived as a serious and widespread problem.

Ian Pearson: I begin by congratulating the hon. Member for Taunton on so ably and frequently deputising for the hon. Member for Twickenham who is the lead name for the new clause. I am sure that it is not his fault that the drafting is technically deficient. For the record, as the hon. Member for Hammersmith and Fulham made some comments about this, the new clause refers to part 9 of the Taxation of Chargeable Gains Act 1992 when part 7 is intended. It also purports to amend a provisionsection 222(5)(b) of the Actthat was repealed in 1996.

Greg Hands: I thank the Minister because I was also told that. However, I went back to the new clause and it clearly states part 7, it does not mention paragraph (b) but does mention paragraph (aa). Will he clarify? I was given the same informationthat there was a drafting errorbut, when I checked, there did not seem to be one.

Ian Pearson: I am certainly advised that the new clause is technically deficient along those lines. I will investigate again and see whether that matter has been cleared up. I hope to go on to explain the other reasons that the new clause does not work as intended.

Greg Hands: Is the Minister saying that he did not check that himself?

Ian Pearson: I am beginning to wish I had never introduced this part of my speech. [Laughter.] Let me make a bit of progress.

Greg Hands: I am concerned because the Minister, in explanation, criticised the new clause for mentioning part 9 of the Taxation of Chargeable Gains Act 1992. It is clear in front of us that there is no mention of part 9. The new clause does in fact refer to part 7, which is the point I was making. It appears to be drafted correctly. Where does it say part 9?

Ian Pearson: I stand corrected on that point. Perhaps the new clause has gone through modifications. There are other reasons why it should not become part of the Bill and I hope to describe them.
I do, however, welcome the opportunity to discuss private residence relief in the capital gains system as an issue more generally. It might be helpful briefly to outline to members of the Committee how the relief operates, although I think that a number of our colleagues understand it perfectly well.
In general, individuals who own more than one residence pay capital gains tax on their second home, but not on their main residence. They can choose which is their main residence and notify HMRC. Any residence that has been at some point a main residence receives relief from capital gains tax for the final three years of ownership.
The relief has been in place since the introduction of capital gains tax in 1965. The only significant change to it has been the extension of the relief for the final period of ownership of a property which has at any point been a main residence. That period was initially one year. It was extended during housing market downturns from one year to two years in 1980, and from two years to the current three years in 1991.
The system currently has a number of features. It is straightforward to operate, as it allows individuals to take the initiative in notifying HMRC of any change of their main residence. It allows people to move residence as and when they see fit, and it also means that individuals who move houses during a housing market downturnfor example, to find workbut have difficulty in selling their old house in a reasonable period of time, do not have to pay a capital gains tax charge. However, as hon. Members have pointed out, the very flexibility of the system has meant that some people have been able to reduce their CGT liability by flipping their nomination of main residence between different properties.
The new clause seeks to address some of the perceived problems with the current system, and I have sympathy with the aims of the new clause, even though I do not believe that it achieves those aims. First, it would require HMRC to contact all those who have more than one residence to tell them to nominate their main one. Although I can see that that might reduce the scope for abuse in some cases, it would mean practically that HMRC would need to monitor the movements of every person in the country who owned more than one property, including landlords of buy-to-let property, to check where they were spending their time. That would be administratively impossible. HMRC has neither the power nor the resources to carry out such a task. It is also, arguably, far too intrusive into peoples lives.

Jeremy Browne: I take the Economic Secretarys point that what constitutes a main property can be hard to defineand Members of Parliament may have discovered thatand even harder to police. However, although people would accept that point, they may still have reservations about a situation where someones circumstances have not changed, but they still flip the designation because of tax liability considerations, not because they are suddenly spending more nights in one property than they were before. If they are going to designate a main property, they should, many people believe, stick with that as their designation unless there is some reason to change it to some other designation.

Ian Pearson: Again, I have sympathy with what the hon. Gentleman says, but there are real practical difficulties involved in establishing main residence.

Mark Todd: Perhaps HMRC might consider contracting out such an enforcement process and the checking mechanisms that are required to a media organisation with experience in this area.

Ian Pearson: I will not pursue the line of argument suggested by my hon. Friend. The new clause would, as the hon. Member for Taunton recognises, oblige everyone who owned more than one home to nominate their main residence within six months of HMRC contacting them to ask for a nomination. The new clause does not specify a time limit within which HMRC is to contact home owners, and so set off the process, so it could have the effect of extending the total period for which a nomination may be made. It would also be an additional burden on home owners who at present, as has been pointed out in the debate, may contact HMRC, but are not obliged to do so when there are changes in the homes that they own and occupy. I can see there are arguments for reducing the period during which a change in nomination can be made. However, new clause 8 on its own would not deal with the problems; it would need to be part of a much wider package of measures to do so.
The third reason why I think that new clause 8 does not work is that it would deny any relief from capital gains tax for someone who moved their nomination of main residence to another property and then moved it back to the first property. Again, I can see the problem that the hon. Member for Taunton is trying to solve, but that approach would capture some people who have moved residence for reasons other than to reduce their CGT liability.
For instance, suppose that someone occupies two homes and has nominated the home where they spend most of their time as their main residence. They then move away to work and as a result their second home becomes, in fact, their main residence and they vary their nomination accordingly. If, because of a change in circumstances, they then shifted their main residence back to their first home, a switch of nomination to reflect that reality would mean that they would receive no relief from CGT on either of the properties under the new clause.
Therefore, there are some real difficulties in the detail of what the hon. Gentleman is proposing. However, he raises some important points about the abuse of private residence relief, which need further consideration. This is a complex issue, but the new clause would create the type of difficulties that I have outlined. On that basis, I ask him to withdraw the new clause.

Jeremy Browne: I never pretended that new clause 8 was a perfect blueprint for administering this difficult area of taxation and I am grateful to everyone who assisted me in making it as close to perfection as it ended up being; if it had been left to me, it might have been a lot further away from perfection. This is a difficult area and trying to amend all the previous Acts of Parliament that we are discussing is obviously difficult, for Ministers as well as for other MPs.
However, I think that the point that I sought to make remains a valid one. That point is that people should expect to pay CGT on the capital gains on properties beyond their first property. Furthermore, a system that is as open to avoidance as the current system is becomes discredited. As a result, the people who pay CGT are, as often as not, the people who are least effective at working their way around the system. Compare their position with that of people who are least eligible to pay the tax. If that happens it is unfortunate, because it discredits the tax system as a whole and people feel that they are not being treated fairly.
What I was seeking to do in new clause 8 was to suggest a possible improvement. I hope that the Minister and other members of the Committee will see merit in exploring this area further, to see where the law can be improved. However, having had a useful conversation, I beg to ask leave to withdraw the new clause.

Clause, by leave, withdrawn.

New Clause 9

Furnished holiday lettings
(1) The Chancellor of the Exchequer shall, before the publication of the 2009 Pre-Budget Report, have compiled and laid before the House of Commons a report containing an assessment of the impact of
(a) section 503 of ICTA, and
(b) chapter 6 of part 3 of ITTOIA 2005,
on the liability to tax of commercially-let furnished holiday accommodation.
(2) A Minister of the Crown must, not later than one month after the report has been laid before the House of Commons, make a motion in that House in relation to the report..(Mr. Jeremy Browne.)

Brought up, and read the First time.

Jeremy Browne: I beg to move, That the clause be read a Second time.
I stand in yet again for my hon. Friend the Member for Twickenham, who is busy advising any politician who wishes to listen on the right way forward for the national economy and indeed the global economy. I am grateful to have the opportunity to lead on some of these matters in his stead.
The subject of new clause 9 is furnished holiday lettings. It is a subject that has probably been raised by constituents and other interested parties with a number of members of the Committee. Having said that, I suppose that I have a particular interest because I represent a constituency in south-west England and the type of properties that we are discussing in new clause 9 are more typically found in that part of the country than in any other part of the country, or so I am led to believe.
New clause 9 is widely drawn. It simply requires the Chancellor to publish a report before the pre-Budget report that would discuss the tax situation of commercially-let furnished holiday accommodation. The Government would then be obliged to arrange for that report to be debated in the House of Commons. I am seeking to draw the Government out on the issue and to enable Parliament to discuss it in a more thorough fashion.
Part of my reason for doing that is the amount of legislation affected by the measure. The people who assisted me found at least seven separate items of legislation that would need to be amended, and there may be others. I have sought to avoid the pitfall of trying to make all of those changes in a way that may not be wholly accurate. Instead, I have asked the Government to look at the issue afresh.
I will start with the background and then get on to the nub of what is not a particularly complicated issue. A furnished holiday letting is a letting where the property is furnished and the letting meets three qualifying tests. The first is that it is available for holiday letting to the public on a commercial basis for 140 days or more during a financial yearfour to five months. A person cannot just let a property out to a friend for a week or a fortnight in August; it needs to be for an extended period. It may be that they live in, for example, a cottage by the seaside in Devon during the winter, but derive revenue from letting the cottage out from April to September, when the demand is greatest.
The second criterion is that the property has to be let commercially for 70 days or moreso it has to be available for 140 days or more and let for 70 days or more. The third criterion is that it is not occupied for more than 31 days by the same person in any period of seven months. We are not talking about a property with a long-term rental arrangement with one party. That one-month period seems reasonable. Anything beyond that ceases to be a conventional holiday letting. That condition ensures that long-term lets do not qualify. In the case of multiple units, such as holiday park cabins, only the first and the third ruleavailable for 140 days or more and not let to the same individual for more than 31 daysneed to be met by each unit.
A number of benefits accrue from having those arrangements for furnished holiday letting. The first is that people who own that category of property can qualify for capital allowancesfor the cost of the furniture and fixturesfor which they would not otherwise qualify, and they can offset losses against their overall income and receive various tax reliefs for which they might not otherwise qualify.
The reason that I have brought the matter to the attention of the Committee now is that in the Budget the Chancellor announced that the current rulesthe ones that I have just describedare incompatible with EU law.

Peter Bone: Ah.

Jeremy Browne: I have a feeling that this afternoon is going to stretch on a bit longer than we might have anticipated.
The Chancellor said that the current rules will have to be abolished. The special tax treatment I have just described will end on 5 April 2010. From then on, furnished holiday lettings will be treated the same as other property investment. At the moment, they are treated as trade property to allow them to qualify for the business and capital allowance reliefs that I have just mentioned. For the next year, the furnished holiday letting rules will be extended to the EEA. The Treasury is predicted to gain, I am told, in the region of £20 million from the abolition.
In the south-west, the region containing my constituency, furnished holiday let properties accounted for £574 million of revenuesome 16 per cent. of all visitor spending in the region. Self-catering visitors, I am told, often stay longer and spend more than those staying at hotels. The sector is therefore seriously important, not just to the people who have such properties, but to the wider economy and community in parts of the country that are heavily reliant on tourist income.
The Chancellor said that the repeal was necessary because the furnished holiday lettings rule only applied to the UK and therefore breached EU law. However, in the technical note published on the day of the Budget, HMRC said:
This difference may not be compliant with European law.
I emphasise may not, so there is some doubt about whether the Government are obliged to go down this path, as was claimed in the Budget.
I leave the Minister, and anyone who wishes to contribute, with the following questions. First, can the Minister tell us whether the current rules are against EU law, or whether the revenue raised is of passing assistance to the Government but they are not obliged to adopt the new arrangements from 5 April 2010? That is a crucial point on which there is an absence of absolute clarity. Secondly, what will extending the rules to the European economic area cost for the next year? That too is a legitimate question.
Thirdly, why did the Government announce the measure in the Budget, without any advance consultation? That point has been made to me by a number of people. It was sprung on them and the first that they knew about it was when they read the financial supplement pages of national newspapers. There had not been any attempt to assess the impact on that part of the economy or, as I said, on the wider tourism industry in parts of the country such as the south-west of England.
Fourthly, I am told that it has been reported in the Western Morning News that the Department for Culture, Media and Sport was not consulted by the Treasury on the changes. If that was the case, that would represent a deficient piece of government and a lack of joined-up thinking, to use the accepted jargon. The DCMS wants to promote tourism and opportunities for people to visit parts of the country where there are attractions that VisitBritain and others are seeking to promote, rather than go on foreign holidays, for example. If the Treasury is bringing in tax rules that run contrary to the efforts of another Department, it seems reasonable that those two Departments ought to speak to each other.
Finally, can the Minister say why the legislation to repeal the rules is not contained in the Finance Bill? To put it another way, why have I had to table new clause 9 at all? A lot of people who are affected by the changes would like to think that those changes, if they were to be passed, had gone through the whole period of scrutiny to which we subject tax law in Committee and through other procedures in the House.
I was keen to make all those points on what is an important matter for the individuals concerned, but also for our wider economy and for the tourism industry, in some parts of the country in particular. As new clause 9 only asks the Government to produce a reportan impact assessment on the changes and on what needs to be donethey should not have great difficulty with it. I look forward to the Ministers response.

David Gauke: The new clause is relates to an important subject and it is right that we debate it, but I fear that in the time available we are not going to be able to do it justice. I have a lengthy speech prepared, but the Committee will be pleased to know that I shall not deliver it.
I echo all the questions asked by the hon. Member for Taunton. In particular, it is striking if the Treasury did not consult the DCMS. I would be interested to know what assessment the Treasury or the Government as a whole have made of the impact that the measures would have on rural and tourist communities, both in the long term, if there is to be a reduction in the availability of furnished holiday lettings, and in the short term, if there is going to be an impact on the housing market in some of those areas.
I should declare an interest as someone who has enjoyed many self-catering holidays in furnished holiday lettings in the UK, frequently in the south-west of England, but last year in south Pembrokeshire. The proposals may well have an impact on holidaymakers, property owners and rural communities alike.
I hope that we have an opportunity to return to the issue, to debate it at greater length, but anything that the Minister can say now would be of great interest.

Adrian Bailey: I do not intend to speak on the new clauseI am not sure whether the hon. Member for Taunton intend to press it to a votebut I bring to the notice of the Committee that I have an interest, which is declared in the Register of Members Interests, although it is not in the constituency of the hon. Member for Taunton.

Stephen Timms: I am delighted to have a chance to contribute under your chairmanship, Mr. Atkinson, in what is likely to be the final substantive debate of the Committee.
We are dealing with an important topic. Landlords are normally taxed on property rent or income under the separate property income rules. Under the furnished holiday letting rules, however, landlords of furnished holiday properties in the UK, if they meet certain qualifying conditions, as set out by the hon. Member for Taunton, are treated for tax purposes on the basis that they are trading. That means that they are subject to a different set of tax rules. Other landlords of residential properties may well be eligible for different tax reliefs, for example more flexible loss relief, which is probably the most important benefit, capital allowances, certain capital gains tax reliefs and relevant earnings treatment for pension purposes. However, landlords with income from furnished holiday accommodation elsewhere in the EEA have not been treated in the same way as landlords with furnished holiday accommodation situated in the UK. They are instead treated under those property income rules in the same way as landlords of other types of UK and overseas property. Preferential treatment of furnished holiday lets as a trade for tax purposes has been limited to the UK.
The difference in treatment may not comply with European law. One can only surmise what a court might ultimately determine, but our conclusion was that we had a choice either to extend the preferential treatment tax treatment to those who invest in European properties that meet the requirements, or to withdraw it for everybody. We looked at the issue very carefully, in particular in the light of our objective to have a thriving UK tourism industry and thriving rural economies. If we wished to maintain furnished holiday letting rules for UK accommodation, it was likely to be necessary to extend them to properties elsewhere in the EEA.

Peter Bone: The Financial Secretary said that other parts of the EEA do not have the rules that we have. Does the financial Secretary know whether that is by chance? Do nation states just happen not to have chosen the way that we have chosen?

Stephen Timms: My point was that UK tax rules do not apply to people who have furnished holiday homes in other parts of the EEA. They do not benefit from the somewhat more generous rules; only those who have such property in the UK benefit. That is why we needed to consider the matter. If we had chosen to extend the benefits to everybody who owns furnished holiday accommodation elsewhere in the EEA, we would be giving more tax relief to the growing number of UK landlords with holiday accommodation abroad. The effect of that would have been to impose an increased cost on all UK taxpayers, with tax treatment in the UK encouraging investment in other countries holiday markets. That is an initiative that would be unlikely to find much favour in the House.
Beyond that, there is a question whether the rules as they stand are still fair. Many residential landlords provide services and undertake activities similar to those landlords who are able to avail themselves of the furnished holiday lettings tax regime, but they cannot qualify for the same tax relief because they do not meet all the conditions. That raised another question about fairness in competition. We made the announcement we did because the regime would neither be supporting the UK tourism industry nor ensuring fair and equitable treatment for residential landlords. We left some time, however, for landlords to adjust to the change. As the hon. Member for Taunton rightly has said, change will take effect in 2010 and will be legislated for in next years Finance Bill.
The hon. Gentleman queried why there was no advance consultation. Having made the announcement in the Budget, we will publish draft legislation and an impact assessment at the pre-Budget report, before the introduction of the measure in Finance Bill 2010. We will be happy to consider any comments on the legislation at that time, so there will be an opportunity for consultation.
The expansion of the relief to the whole of the European economic area would roughly double the cost from £15 million to £30 million per year, and one can envisage the costs of the European element growing faster than those of the UK element. We will publish the impact assessment, albeit at the PBR rather than, as the new clause suggests, ahead of it. I hope that the hon. Gentleman accepts that there will be time for discussion and that the aim of the new clause will be delivered by the steps that I have described.

Jeremy Browne: I am grateful for the Ministers typically considered, thorough and courteous response. I had toyed with idea of pressing for a Division to allow members of the Committee to reflect the concerns that have been expressed to me on behalf of those who have been adversely affected by the changes. However, as the Minister made an effort to say that there will be greater consultation and an impact assessment, it would be churlish to question his commitment to that.
I hope that that exercise will be undertaken with an understanding that there are individuals whose livelihoods are severely affected by the changes. It is not a mere technical matter; some people rely on the income that they receive from holiday letting. I hope that the Minister realises the impact on such individuals and on communities across the UKparticularly, as I have said, in the south-west of Englandwho are worried that they may lose crucial tourism revenue as a result of the changes, especially during the summer.
In the light of the Ministers generous remarks, I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

Clauses 125 and 126 ordered to stand part of the Bill.

Question proposed, That the Chairman do report the Bill (except clauses 7, 8, 9, 11, 14, 16, 20 and 92), as amended, to the House.

Stephen Timms: Before we conclude our consideration of the Bill, may I put on record my thanks to you, Mr. Atkinson, and to Mr. Hood for your stewardship and guidance throughout our debate? May I also ask you, Mr. Atkinson, to pass on our thanks to Sir Nicholas for his temporary assistance during our third sitting?
Let me also thank the ClerksMr. Laurence Smyth and his colleaguesas well as the Hansard reporters, the doorkeepers and the police officers for their help in ensuring that the Committees business has run smoothly, and for all the help that they have given to members of the Committee. I would also like to thank the representative bodies that have worked with officials, my ministerial colleagues and me, for their help in identifying how the Bill could be improved.
We have enjoyed a smorgasbord of issues, such as white label cigarettes manufactured in eastern Europe; the removal of Japanese knotweed; the taxation of European backwoods, which cropped up on a number of occasions; the striking parallels evident to at least some members of the Committee between tax avoidance legislation and the book of Leviticus; and the recycling facilities in Taunton, which, if I remember correctly, the hon. Member for Taunton invited us all to visit, which was a generous offer indeed. Like others, I, too, congratulate him on shouldering the whole burden of the Bill in the absence of the hon. Member for Twickenham.
The range and depth of our deliberations has been substantial. I express particularly my thanks to the Lord Commissioner of Her Majesty's Treasury, my hon. Friend the Member for Waveney, who is in his constituency today. His shoes have been ably filled by my hon. Friend the Member for Erewash. I would like also to thank my hon. Friends the Members for Hove and for Glasgow, North-West, who have often been a source of much-needed inspiration in our debates.
I would like to thank all my hon. Friends on the Committee for their patience, and Opposition Members of all parties for their constructive and good-natured contributions throughout our procedures. They have helped to ensure that the Bill is better and clearer.
I particularly thank my hon. Friends the Exchequer Secretary, the Economic Secretary, my hon. Friend the Member for Wallasey (Angela Eagle), who is now the Minister of State, Department for Work and Pensions, and my hon. Friend the Member for Burnley (Kitty Ussher) for all the help that they gave while they were in their posts.
I would like to thank all the officials from the Treasury, Revenue and Customs, and other Government Departments, whose help has been invaluable. I am particularly grateful to parliamentary counsel for their work behind the scenes, which is essential to all that we do.

Mark Hoban: May I also thank you for your stewardship of the Bill, Mr. Atkinson. You have shown wisdom, and, from time to time, patience was a quality that you displayed to the Committee. The same qualities have been shown by your co-Chairman, Mr. Hood. I am sorry that Sir Nicholas is not here to chair the closing sitting. I know that he enjoys it so much.
I would also like to thank the Clerks. The Financial Secretary referred to parliamentary counsel. We do not have such resources when we draft our amendments and so are grateful to the Clerk and the Public Bill Office for their help and support. The Financial Secretary pinched my joke about smorgasbords. I think that the Hansard writers have had to deal with a veritable smorgasbord of technical terms and foreign place names. I would also like to thank the doorkeepers.
I have a particular word of thanks for the representative bodies, because they give Opposition Members enormous help in coming up with ideas and thoughts about how to improve legislation. PricewaterhouseCoopers in particular supported us throughout the process. John Whiting, who has been a source of advice to both sides of the House, is retiring at the end of this month, but his wisdom and counsel will not be lost to the world of tax, as he will move seamlessly to the Chartered Institute of Taxation. We are all grateful for his help.
I am grateful to the ministerial teamthe Financial Secretary, the Economic Secretary, and, of course, the Exchequer Secretaries. We have seen a veritable array of Secretaries over the past month. It is ironic that my neighbour, the Exchequer Secretary to the Treasury, the hon. Member for Portsmouth, North, and I will spend a great deal of time together over the next few months debating a range of issues to do with financial services.
I am grateful for the support that I have had from my hon. Friends the Members for South-West Hertfordshire and for Hammersmith and Fulham. It is, of course, the first Finance Bill that my hon. Friend the Member for Hammersmith and Fulham has done from the Front Bench. He has overcome his natural reticence to play a full role in the Committee.
I am also grateful to my backwoodsmen for their service during the course of the Bill, and, of course, to our Whip, the hon. Member for Rochford and Southend, East, who, together with the Lord Commissioner of Her Majesty's Treasury, the hon. Member for Waveney, ensured that the Committee ran to time and harmoniouslyuntil 16.09 on a Thursday. I am conscious that we are not as harmonious today as we have been for most of the other days.
The hon. Member for Taunton has played his customary role of being the sweeper from time to time on the comments that we have made, but today that role was reversed. Perhaps he is auditioning to be the new sage of the Liberal Democratsthe sage of Taunton, perhaps.
This has been an effective Finance Bill scrutiny process. Our task as the Opposition is not just to make political points but to probe and tease out some of the issues behind the Bill. I think that we have done that very well in the sittings that we have had. I look forward to rejoining battle downstairs on Report.

Jeremy Browne: I will be extremely brief[Hon. Members: No.]unless provoked. I will be going down to Taunton shortly, and if anyone wishes to come and see the recycling facilities with me this evening, I think there is extended opening on a Thursday.
I want to thank you, Mr. Atkinson, and your fellow Chairman for the diligent way in which you have ensured that we kept to the task before us. I also thank the representative bodies that the hon. Member for Fareham mentioned. Opposition parties do not enjoy the benefits of having the apparatus of the state at our disposal, and therefore the assistance that we have from organisations such as PricewaterhouseCoopers, the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales is very helpful in assisting us and our staff to table amendments and new clauses that are technically capable of being debated, and implemented if that is the will of the Committee.
I thank the Ministers for undertaking a sizeable task, which they have undertaken with good humour and considerable application. I thank all members of the Committee. It is a bit like a Big Brother household, apart from the fact that people do not get chucked outsadly. [Laughter.] Well, perhaps a new feature might be for people to text inin this new modern era that you are now a part of, Mr. Atkinsonwith their views on which members should be expelled if they have not contributed in the right way. We get to know the characters of everyone who serves on the Committee and feel enriched as a result.
Finally, I thank my hon. Friend the Member for Twickenham for his inspiration throughout this process. No wonder he is held in such high esteem by the people of this country. He has been able to contribute to the probing that has been evident from the Liberal Democrats without even having to deliver that many speeches himself. For all those reasons and with a high degree of affection, may I say how much I will miss our deliberations? On that note, unless others wish to contribute, we may feel it is time to go on to other activities this afternoon.

Peter Atkinson: I add my thanks to the Clerks, the Hansard writers, the doorkeepers and the police for keeping us straight in Committee. I also thank all members of the Committee, which has been good-natured. Incredibly for what normally is a fairly boring subjectthe Finance Billit has been very amusing from time to time. I appreciate how much hard work goes into it. The matters are very complicated and there has been a vast input from all the teams in Committee. My thanks to you all.

Question put and agreed to.

Bill (except clauses 7, 8, 9, 11, 14, 16, 20 and 92), as amended, accordingly to be reported.

Committee rose.